Equity release could plug the gap of falling interest rates eating into retirees' incomes, an expert has said, and it can then be redeemed when it is no longer needed.
Following another cut in the base rate last week, which saw it fall to 0.5 per cent, equity release expert Nigel Hare-Scott has suggested that pensioners could use an equity release plan as a way of seeing them through the credit crisis.
Pensioners are feeling the falling interest rates particularly keenly, as they are having a knock-on effect on their fixed incomes. Their savings and investments are not producing the same income they once were, leaving them short.
"The unprecedented reductions in interest rates have cut savings incomes drastically and annuity rates have also deteriorated," said Mr Hare-Scott, who is from Home & Capital equity release.
"So many of the things taken for granted have come unstuck over the past year," he said. "House prices are no longer a one way bet, investment bankers are no longer masters of the universe, trade and personal credit is no longer freely available - worst of all perhaps, retirement plans have unravelled tragically for those without the protection of a defined benefit pension scheme."
Pensioners are therefore struggling to make ends meet, and are looking for alternative ways of funding their retirement.
"Against this background, an equity release transaction could be the solution for many retired homeowners," continued Mr Hare-Scott.
"Their home remains the principal store of wealth for most people."
Furthermore, he added, it is now possible to take out an equity release scheme on a basis which does not extend forever, so it does not have to be a permanent commitment.
"In many cases, consumers will be able to redeem their plans at a time when financial markets have recovered a sense of normality," Mr hare-Scott explained.
"Equity release can hence now be used to provide financial support through the bad times, but in a manner which does not become a burden when the good times return."
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