Equity ‘increasingly being used to pay off debt’

Those who are in debt have increasingly been relying on equity to pay it off, an expert has said.

Director general of Safe Home Income Plans (Ship) Andrea Rozario said homeowners have tended to use equity release to raise capital for a more comfortable retirement or to help make home improvements, but noted this has changed recently as a growing number have used their bricks and mortar to raise cash to pay off debts.

She explained: "It could be they had an interest-only mortgage previously – with the view of selling and paying off that mortgage at a time when they came to retirement. But, they may find that they no longer wish to do that and they find they have another option – which is to take out equity release."

Whatever the reasons, using equity release may help ensure against repossession and clear debts.

But this may not be an available option for others, such as younger people and, most obviously, those who are not homeowners.

In these cases, debt may be a problem that cannot be so easily tackled and other means may be required, which in the case of severe and unpayable debt of £15,000 or more could include individual voluntary arrangements (IVAs).

These involve an agreement by which creditors will accept lower monthly repayments to avoid losing more through bankruptcy, with these being made on a regular basis for up to five years, after which any debt left is written off.  

However, it does require the consent of three-quarters of creditors to be binding.

One thing those struggling with debt should do is find out if there are any benefits they are entitled to that could ease their financial burden, managing director of the Debt Advice Foundation David Rodger recently noted.

Posted by Paul Thacker