Borrowers Turning To Last Resort Loans

Mon, 17 Dec 2007

More Brits are seeking out equity release products, more commonly known as ‘last resort loans’, as the credit squeeze on UK lenders continues to force more conventional loans and mortgages to dry up.

According to UK brokers and product providers, inquiries for equity release plans - where an amount can be borrowed either in a lump sum or as a series of "drawdown" payments secured on the value of the house after the borrower dies or goes into retirement housing - have risen significantly over the past two months.

Bob Mottershead, head of retail sales at Newcastle Building Society, which acts as a broker for equity release plans, said there has been a "great deal more activity in the last four weeks in particular".

The building society said sales had risen 12 per cent between January and October and new inquiries had increased by around 15 per cent since September, leading to estimates of a £1.4bn market value for 2007 – which could double by 2010.

The market for loans and mortgages to customers who suffer from bad credit has effectively dried up as lenders struggle to maintain liquidity. According to Moneyfacts, the number of subprime mortgage deals has dropped 64 per cent since July.

Jon King, managing director of Hodge Equity Release, said: "Sales of mortgages are down heavily and we're finding that intermediaries are looking at equity release more seriously as an alternative."

King, who is also a director of Safe Home Income Plans (Ship), which represents providers of equity release plans, added there was less of a credit crunch among its providers because loan-to-value ratios were much lower, while loans are also less risky for providers as they are secured on the long-term value of property .
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