Opting to use an equity release scheme to borrow money against the value of a home could be one way for older people to supplement their retirement income, it has been claimed. The Fair Investment Company has pointed out that individuals who are looking to boost their income in their older years may wish to consider the use of an equity release scheme to help supplement pension income.

Such a scheme, which allows homeowners to take out a loan against a property to free up more cash, may be one way to help fund the costs of retirement, the Fair Investment Company claims. Such borrowing schemes may allow people to repay the cost of a loan with the sale of the family household after death. Different types of this type of secured loan are offered, with some requiring interest on the loan to be paid each month, while others accrue the interest so that it can be paid in full after death.

Chartered financial planner for the company Sharon Bratley said: “The increased interest in equity release is hardly surprising given the current financial climate. Pensioners are finding it tough and releasing equity from property may be the only way to survive through retirement for some.”

She added that equity release is now regulated by the Financial Services Authority so is “much safer” than it has previously been. The organisation notes that equity release schemes are in general only available to people over the age of 55 and so could prove to be a successful way to fill the gap between a previous salary and a low annuity from a pension scheme.

However, the organisation also notes that there are some potential drawbacks with equity release schemes – particularly if people wish to leave their house as an inheritance to their offspring. One of the rules of equity release schemes is that houses are sold to pay off the loan when the term comes to an end. And also, if people wish to move home, then policies may have to be amended or changed.

There is also the possibility that taking out an equity release scheme would lead to changes in entitlement to state benefits. Also, interest rates can be high, so consumers should be aware that funds may not stretch as far as had originally been expected.

Recent research from Safe Home Income Plans, the representative organisation of more than 90 per cent of equity release providers, revealed there was a 14 per cent increase in the number of people opting to take out this type of loan during the first quarter of the year.

In related news, recent figures collated by Halifax for the organisation’s July House Price Index revealed that the cost of a home fell by 1.7 per cent over the course of the month – and were down by 8.8 per cent on an annual basis. However, the rate of house price decline has continued to slow in recent months, research by the bank has indicated. During May there was 2.5 per cent fall in prices, while in June there was a 1.9 per cent drop, the study revealed.

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