One of the biggest problems with property is the difficulty of turning wealth tied up in bricks and mortar into ready cash. For many years equity release mortgages have claimed to offer the answer, and with standard mortgage rates soaring, they look better value than ever.

Defaqto, the data analyst, found that since the credit crunch began the average premium paid for an equity release mortgage compared with a standard loan has almost halved.

The best-buy fixed-rate deal on an equity release loan now costs the same, at 5.99 per cent, as the best-buy ten-year fix on a standard home loan. Last year the difference between them was 0.93 points.

Equity release sounds like a dream solution. These deals enable older borrowers to take out a mortgage on a portion of their property and no interest is payable until

the borrower dies, at which point the interest and the capital should be repaid. The repayment usually comes out of the sale of the property. If the mortgage is taken out jointly by a husband and wife, repayments are not due until the second death.

While lenders have been deliberately pricing themselves out of the traditional mortgage market, equity release providers are still competing fiercely for new business. They have been improving terms and rates at a time when other borrowers have been suffering from higher repayments and harsher lending rules.

The primary reason is that equity release deals are less risky for the lender. Borrowers cannot default because they are not making repayments and the long-term nature of the deals means that the lender should profit.

The deals may look even more tempting now, as the cost of living continues to rise. Key Retirement Solutions (KRS), an equity release specialist, says that about one in three of its customers takes out a loan to help to cope with bills or debt repayments. But there are concerns that the deals are still expensive relative to other ways of generating extra cash, such as realising money held in savings accounts or other investments, borrowing from friends or family, or taking out a personal loan and repaying it over a much shorter period, thereby reducing the total amount of interest.

Equity release can eat into any legacy that children are expecting. For instance, a 70-year-old borrower could release a maximum of 33 per cent of his property's value with Norwich Union. If he took out £70,000 from a property worth £210,000 at age 70 at a rate of

5.99 per cent, the total amount owed if he died at 90 would be £224,076. In a falling market there is a chance that there would be nothing left after the sale of the property, but most loans guarantee that the borrower will not owe more than the house is worth.

With house prices falling, anyone considering equity release must think carefully. They are faced with two choices: arrange a loan imediately in case prices fall further, or wait for the property market to improve.

The deals allow you to take out a percentage of the value of your property, either as a cash lump sum or as

a regular income. The amount that you can borrow rises with age. For instance, a 65-year-old could obtain a sum equal to between 20 per cent

and 33 per cent of a property's value. This rises to between 25 per cent and 38 per cent for a 70-year-old.

Dean Mirfin, of KRS, says that the income option provides some protection against falling house prices. He explains: “With drawdown, you can lock in to the loan-to-value limit based on the current property value and take a percentage of the total loan immediately, but then arrange to be paid the rest later. Interest is added only to the amount drawn, potentially saving thousands of pounds.”

CASE STUDY

Frank and Gillian Handley, of Suffolk, think that equity release has changed their lives.

The couple, left, took out almost a quarter of the value of their semi-detached property in October to help with home improvements, living costs and to give money to their three sons, who are in their mid-thirties.

They opted for a drawdown plan from Key Retirement Solutions, which will allow them to take out a further lump sum, should they decide they need it, at a later date.

Mr Handley, 68, says: “The money has allowed us to be generous towards our three children when they need it, instead of having to make them wait to inherit from us.

It has given them all a boost and has relieved a lot of financial pressure.”

The couple, whose only other income is the state pension, also used the money to invest in upgrading their property, buying double glazing and a new boiler.

“The loan has allowed us a bit of luxury at the end of our term,” Mr Handley says.