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Fall in living standards blamed as equity release figures soar 37%

SCOTLAND is witnessing rising numbers of older people borrowing against the value of their house to shore up shaky finances, new research has revealed.

Loans under equity release schemes rose 37% to £64 million in 2013 in Scotland, far outstripping the 10% growth in the UK market, according to Preston-based lender Key Retirement Solutions (KRS).

With 72% of Scottish borrowers saying their loan is aimed at helping them with bills or establishing emergency funds, falling living standards are likely to be one reason behind rising demand. Another is that Scotland has traditionally been a lower priority for the big annuity players including Aviva, Just Retirement and Partnership.

Overall UK lending to this niche sector is around £1 billion. Edinburgh is currently leading the Scottish market, with 298 plans agreed last year worth £12.3m. Glasgow borrowers agreed 235 plans worth £7.3m.

The idea behind the schemes is that people borrow against the value of their houses. Usually the loan is not paid back until they sell the house or die, although a minority make interest payments.

Borrowing rates are traditionally 6% to 6.5% APR, which means that without interest payments the debt roughly doubles every 11 years.

With packages designed so that the borrowers avoid negative equity, 65-year-olds can generally borrow no more than one-third of the value of the property and 80-year-olds can usually only borrow up to 50%.

Borrowers have the choice to either take a lump sum or draw down what they need with a facility to take more as and when they need it. The average amount borrowed in Scotland in 2013 was £46,000, a slight rise year on year. The total number of plans agreed rose from 1161 to 1571.

Dean Mirfin, group director at KRS, which has about one-third of the market, said: "Debt repayment is a big thing. A lot of people do equity release to clear the mortgage, maybe they've got an endowment shortfall or are coming up to retirement with no repayment vehicle because they've been paying interest only."

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