More than half of Scots aged over 55 owe money on some type of credit, according to a report this week.
Many do not expect to be free of debt at retirement, yet there is a risk that they may not be able to roll over their borrowings. The report by advisers Key Retirement Solutions found that the number of loans available to the over-65s was less than half that available to younger people.
Over-55s are increasingly being forced to consider equity release schemes in order to unlock some of the cash in their properties because of the difficulties they face borrowing elsewhere. But without a concerted effort to improve the market, equity release will not deliver good outcomes for some consumers according to a recent report by the Financial Services Consumer Panel.
A growing problem is older homeowners with interest-only mortgages that are coming to an end, who do not have any means of repayment, and are looking for alternative loans.
Many ordinary banks and building societies no longer offer interest-only products and have formal or informal age limits as part of their lending criteria. Some of these homeowners are turning to equity release lifetime-mortgages instead.
Nigel Waterson, chairman of the Equity Release Council, claims that providers are performing a valuable service: "We are riding to the rescue of these homeowners".
For some equity release companies, providing finance to repay interest-only mortgages has become a major source of business. Georgina Smith, managing director of Stonehaven, says: "Just under half of our new clients are switching from interest only mortgages." But she would like more banks and building societies to start offering equity release products too, "so that the market becomes more "mainstream".
The Financial Services Consumer Panel highlighted a lack of consumer choice in the equity release market. It voiced concerns about "confusing, restrictive and changeable product terms" and "high and unpredictable exit penalties" on equity release products.
Leading providers of equity release products currently include Aviva, LV= and Just Retirement, while a new provider has just entered the market for the first time in more than three years. Pure Retirement is a sister company of Leeds-based advisers, Age Partnership, which sells equity release products nationwide.
The three Scottish advisory firms listed as members of the Equity Release Council, conforming to its code of conduct, are Alpha Wealth in Edinburgh, Meldon Independent in Peebles and Motherwell Mortgages in Motherwell.
Financial advice relating to equity release normally works well according to a consumer study by the University of Essex. But it found that advice was liable to be less useful where consumers were under pressure to clear debts or in financial difficulty.
Equity release products are also known as lifetime mortgages. Conventionally a loan is secured on the customer's property and the interest rolls up until the property is sold and the lender repaid (usually when the homeowner dies or moves into a care home).
However, when the interest rolls up, the size of the loan can mushroom, and some consumer groups question whether many consumers really understand the concept of compound interest.
An example from Stonehaven shows that a £50,000 loan taken out at age 60 at a fixed interest rate of 5.89% will have snowballed to £207,690 by the time the borrower reaches age 84. But the provider points to the facility for borrowers to pay all or part of the interest for the duration of the loan, which it says 'negates the erosive effects of compound interest.'
Ms Smith says that the homeowner's children will sometimes pay the interest. "Our research shows that gifting to children has become the third most popular use of lifetime mortgage loans, after paying off outstanding mortgages and making home improvements.
Parents or grandparents are looking to help children get a foot on the property ladder and in return the children pay the interest, in order to safeguard the remaining equity in the property."
Problems with equity release products can emerge further down the line. Some sheltered accommodation providers, for instance, have stringent conditions relating to the resale of property, which do not give the equity release provider adequate security for their loan. The Consumer Panel has called on providers to take a more flexible approach.
The panel also criticised the exit penalties that can be incurred if a family decides to redeem a lifetime mortgage early. Providers explain that they cannot re-lend the money to another equity release customer at the same or a higher rate of interest.