A growing number of borrowers are using equity release to pay off their car finance, Key Retirement has warned.
The equity release specialist said of the 30 per cent of pensioners who used equity release to pay off unsecured debts in 2016, it had noted a growing use of equity release to satisfy debt taken out to finance car purchases.
Last month the Financial Conduct Authority revealed it was speaking to American regulators and bankers over fears a boom in the number of car finance loans, known as personal contract purchases (PCP), was fueling an unsustainable credit 'bubble'.
Dean Mirfin, technical director at Key Retirement, said that as more people found it harder to get finance the more they would have to resort to equity release to fund car purchases.
Mr Mirfin said: “We have seen the impact for some time; the criticism levelled out about car finance and the seemingly lack of affordability analysis.
“The real outcome of that is that it is going to be harder to get car finance in the long term. A lot of the people we see in that 30 per cent of paying off debt are paying off car finance. At a point in time it was the only way to get a car and they want to now pay it off.
“Conversely if it gets harder to get finance in the first place, we will start to see an increase in people using equity release to buy cars.”
As a result Key Retirement, which also reported a boom in equity release as a result of maturing interest-only mortgages, was exploring how it could break out this figure in its full-year report next year.
Highclere Financial Services director Alan Lakey said: “Historically [equity release] has been seen as a last resort product.
“Having said that, the lines between standard mortgages and equity release loans are becoming blurred and we must not forget that it is the borrower’s prerogative to make use of his or her assets in whatever way they wish.”
Jane Hodges, chartered financial planner from Money Honey, added: “Equity release isn't right for everyone but for those of the right age group, who understand the implications of leveraging the equity in their house, they can provide a much higher standard of living for themselves while still ensuring they can live in the property for the rest of their lives.
“Would I do it in that situation and had no other sources of funds and was part of a proper plan towards my later life and long term plans?- yes I would definitely consider it. Would I do it just to buy a car? I would probably talk to my bank about a loan first as they are costly way to raise small amount of finance.”
Ima.Jackson-Obot@ft.com
