A banking expert has defended the concept of equity release against criticism of it in a guide issued by consumer watchdog Which? where it advised pensioners to see it as a 'last resort'. Equity release
is a "feasible option for some pensioners struggling at this time of financial crisis", says David Black, principal consultant of banking at Defaqto.
He believes that equity release should be "considered alongside other options as a possible source of income in retirement."
Equity release schemes allow people to unlock cash from their property, and in turn allows them to remain living in their home. This is especially poignant in today's society, as more and more retirees find that their pension is not stretching far enough to cope with the rising cost of living.
"In an age of financial shocks, inadequate pension provision, low annuity rates and burgeoning levels of personal debt it seems somewhat hasty to arbitrarily downgrade one of the possible solutions." Mr Black said.
One of Which?'s criticisms of such schemes was that there are better alternatives, such as selling up and downsizing to a cheaper property. However, Mr Black recognises that many people have an attachment to their homes which they are unwilling to break, adding that the cost of buying and selling properties might not leave them any better off.
Which? also highlighted that because of its effect on household income, equity release presents a risk to tax liability and benefits based upon means tested. But moving house can have a similar effect, Mr Black argues, due to the proceeds gained from downsizing.
He would urge pensioners that "All options should be considered on their merits", and that while equity release is not suitable for everyone, it is "an appropriate solution for many people". Already, an increasing number of people could benefit more from equity release than moving to a cheaper property, he said.
Mr Black also points out that even though a lifetime mortgage can be a bit more expensive than traditional mortgages, equity release comes with the added bonus of a no negative equity guarantee, not something which could be found in today's mainstream property market.
© Fair Investment