Retired home owners are being forced to borrow a record £4 million a day against their properties because a savings crisis has left them too little to fund retirement, according to new figures.
Tens of thousands were resorting to using their homes as “cash machines”, experts said, as they struggled to fund retirement plans and pay care bills in old age.
Pensioners in their sixties and seventies in particular were turning to equity release, an expensive type of borrowing which typically lasts for life.
Industry figures show the sum lent each day to the over-55s reached a record high between July and September this year, despite consumer bodies warning that equity release should be seen as a “last resort”.
More than £375 million was borrowed in the three-month period, according to the Equity Release Council, the industry trade body, equal to £4 million a day.
Nigel Waterson, a former Conservative MP and chairman of the organisation, said: “These figures show equity release is proving invaluable for the over-55s approaching retirement as pension savings fail to cover rising costs.
“Rising house prices also mean that customers have a growing pool of equity at their disposal.”
Savings rates have plunged since the financial crisis, hitting large numbers of elderly people who relied on the interest to supplement their pensions.
Many savers have also found that money in pension funds has provided a much lower income than they had anticipated.
In the early Nineties, a man aged 65 could have turned £100,000 into a lifetime income of more than £15,000 a year by buying an annuity.
Today, someone of that age would be offered nearer £6,000.
Ros Altmann, the Government’s older people’s tsar, said for many pensioners, George Osborne’s radical reforms next year allowing unlimited access to pensions will come too late, as they have already locked into an annuity.
“Many people are realising that the only way they’ll get the retirement they want is find a way to unlock the capital in their homes, which is typically their largest asset,” she said.
Almost half of those borrowing against the equity from their homes were doing so to meet “everyday costs”, the Equity Release Council found, although most gave more than one reason.
Other causes included funding home improvements and holidays, with four in ten citing one of these reasons as the motivation.
The research found 27 per cent of people wanted to give money to family members, particularly grandchildren who were struggling to get on to the property ladder themselves.
Others said they needed cash to pay off existing debts or clear a mortgage.
Ms Altmann said some pensioners were borrowing against their homes to pay for nursing care as they awaited the £72,000 cap on fees due in 2016.
“The situation will only get worse as more people need care in later life and are forced to spend hundreds of thousands of pounds before the Government steps in to cover the costs,” she added.
One in five over-55s who were considering equity release told lenders they needed the money to fund home improvements so they could receive care in their homes.
The average amount borrowed between July and September was £67,467, the data showed, itself a record.
In total, 5,565 people took equity release, the largest number for six years, taking the total to 15,624 for 2014. Customers had borrowed 32 per cent more than in 2013.
Most pensioners are refused traditional mortgages because they are retired. Equity release is like a mortgage without the monthly repayments. The borrower is given a lump sum of money that only has to be repaid on death or when the house is sold.
Typically, the interest rate is around six or seven per cent, which is added to the debt and “rolls up” each year. As a result, the total debt typically doubles in around 11 years.
Which?, the consumer group, said that made it “expensive” and should be considered only if absolutely necessary.
Richard Lloyd, executive director, said: “Equity release mortgages can be a complex and an expensive way to borrow but it’s likely that more people will consider this option in future."
“It’s important people know what they are signing up to and anyone considering this should seek independent financial advice from an adviser with a specialist equity release qualification who can explain the risks and alternatives,” he added.
Dean Mirfin, director of equity release advisers Key Retirement Solutions, said rising house prices, which help offset the costs, had given the over-55s more confidence to borrow.
This was particularly true in the South East, he said, after data on Monday showed house prices were rising faster in the commuter belt around London than in the capital itself.
“For many older homeowners their greatest barometer of their financial well-being is the value in their home,” Mr Mirfin added.
“Throughout 2014, pensioner property wealth has continued to grow at pace and it comes as no surprise that, in tandem with property gains, demand for equity release has been at such high levels.
“Those releasing equity are not being frivolous, with the majority using the money to reinvest in the upkeep and improvement of their homes, repay debt or support their day to day living,” Mr Mirfin said.
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