This spike underscores worries that pensioners might be using equity release mortgages to cope with escalating living expenses without fully comprehending the associated costs.

Equity release mortgages enable homeowners to extract funds from their property’s value while living in it. The loan, including the rolled-up interest, is repaid when the property is sold, typically when the borrower passes away or moves into long-term care. Some providers now also offer overpayment options, the FT reports.

This equity release trend aligns with the UK’s persistent double-digit inflation and the steep rise in borrowing costs due to interest rate hikes. A report by the FCA identified nearly 11 million people facing difficulties meeting bills and credit payments early in 2023, up from 7.8 million in May 2022.

Repossessions of mortgaged homes also surged 50% to 750 in Q1 2023, according to UK Finance, a significant lobby group. The FCA expressed concern last year about consumers’ financial stress, noting their vulnerability to unsuitable equity release products.

Bowmore Financial Planning, which obtained the figures via a Freedom of Information request, indicated that these equity release sales could be a strategy by homeowners to bolster their finances amid the cost of living crisis. Yet, they warned that higher interest payments might rapidly diminish the remaining equity on properties.

Mark Incledon, CEO at Bowmore, cautioned that equity release, often touted as an easy solution, can instead lock borrowers into a long-term commitment without them fully grasping the implications.

The average interest rate on such loans was 6.17% in 2022, up from 4.81% in May of that year, as per Moneyfacts. However, the rates have been declining since November 2022.

The Equity Release Council (ERC), the industry body, endorsed partial repayments on equity release loans last year, a move that enables homeowners to retain more of their equity.

As a result, penalty-free repayments climbed 48% in 2022, reducing loan values by £102m. The average equity release plan stood at £133,216 in 2022, sufficient to sustain a “moderate lifestyle” for a single pensioner for 12 years, ERC data showed. But the average amount dropped to a six-year low of £61,785 in Q1 2023 due to higher interest rates.