‘My client released £6k equity from their home to pay energy bills’

Equity release was once associated with funding home improvements and holidays, but with 15-year interest rate highs and inflationary pressures lifetime mortgages are now being used to pay energy bills and fend off repossession.

Jan Johnson, director at 55 Plus Equity Release, told FTAdviser she has seen markets like this before, but “not quite at this level”.

Starting out in 2005, Johnson said she remembers the highest interest rates reaching 8.5 per cent. But today, the highest rates she is seeing have exceeded 9 per cent.

After the financial crash, Johnson set up her advisory business in an effort to help guide people out of financially precarious positions. Now, she is experiencing another wave of such clients.

“Due to the cost of living crisis, I’ve had people wanting to take money out to pay for their energy bills,” said Johnson.

“A lady drew £6,000 out because she was terrified of turning the heating on. You don’t want an elderly person sitting in a cold house all winter. We do try to look at other options first, such as family.

“Often, we only hear about drawdowns when the money has been released. We have spoken to lenders in the past asking to be involved in this to make sure it’s the right thing for the client.”

When a client releases equity by drawing down from a lifetime mortgage, they may or may not have a drawdown facility in place. 

If they do, they have to pay a new interest rate on the amount they draw down.

Current interest rates, Johnson said, have not prompted a lull in clients drawing down. Rather, the reasons for drawing down are shifting from luxury to survival.

In lockdown, clients released equity from their homes to help their children - many of which moved back into their parents’ during the pandemic - to get on the property ladder. 

There’s less choice. It’s not a whole-of-market offering right now.Jan Johnson, 55 Plus Equity Release

When the world began to open up again, more luxurious reasons for drawing on house equity re-emerged, but this has halted again in the face of a worsening cost of living crisis.

“When you’ve got rates of 8 or 9 per cent, you’re more aware that you’re stuck with it for life,” she said.

Those without a drawdown facility who want to release equity have to set one up. When a client does not have a drawdown facility they have to apply for a further advance through an adviser, which can incur an additional cost. The rate on the further advance will be at the new rate

Johnson said in the last few weeks, lenders have been pulling drawdown products from the market.