New research from more2life and Cebr has found that over-55s are expected to borrow £19bn less over the next two years as a result of the coronavirus pandemic.
The equity release lender said this fall is expected to be due to the older generation being more cautious amid the current economic uncertainty and cutting spending on big ticket items such as cars, delaying moving home and avoiding unnecessary spending. As a result, the total amount of debt held by the over-55s is forecast to fall from £226bn (2019) to £211bn (2020), and then £207bn (2021).
However, as the economy recovers and consumer appetite for borrowing returns, more2life’s research forecasts borrowing levels will rise after 2021, ultimately reaching £300bn by 2030. This would see the total amount of debt owed by the over-55s increase by almost half (42%) in just 10 years when compared to 2020 levels (£211bn).
This drop in forecasted debt can be attributed to falling consumer confidence as well as a dramatic shift in household spending since the start of lockdown, with nearly all households spending less than in pre-pandemic times.
Households aged 55-64 are expected to owe £94,173, including mortgage repayments, in 2021 compared to £106,552 in 2019 on average. Households aged 75 and over who still hold mortgage debt will also see their total debt level fall from £67,007 in 2019 to £58,975 by 2021.
Figures from the Office for National Statistics (ONS) reveal that households have been able to save an average of £182 per week during lockdown due to reduced spend on travel, meals out and clothing. The figures also show a stark generational divide, with those aged between 65-74 having been able to save an extra £83 per week compared to those below the age of 30.
For these older consumers, who spend nearly a third (29%) of their income on non-essential items such as holidays and cars, spending has dropped significantly. As such, there has been less need for these consumers to borrow to cover large purchases. However, while retirees may be borrowing less at the moment, many will also have experienced a loss of income as a result of the pandemic.
Recent data has revealed that nine in 10 (89%) people who are saving for retirement or currently retired saw the value of their pension pot fall by an average of 15.2% in the first quarter of 2020 – the worst quarterly performance on record. Furthermore, 30% of those aged 60-64 who are still working are now earning less than they did prior to the outbreak.
Indeed, nearly a third (30%) of respondents aged 54 and over think that the pandemic will impact them financially and increase the amount of debt they have. This was particularly prevalent among those still working, with 33% of respondents in full-time employment and 40% in a part-time job believing the outbreak would raise their debt levels.
Dave Harris, chief executive officer at more2life, said: “The coronavirus pandemic is having a huge impact on the way over-55s spend their money. The nationwide lockdown, coupled with the heightened economic uncertainty, has caused many retirees to become more cautious and rein in their spending on larger or discretionary goods. However, although we are expecting to see a short-term fall in borrowing by the over-55s, it is clear that this will not be a lasting trend.
“Almost a third of this demographic will experience a hit on their finances and are expecting their debt to rise as a direct result of the pandemic. For those who are impacted financially and need to draw on extra funds, it is crucial that they are made aware of the solutions that can help them bridge this income gap.
“As debt among older generations rises, it will be vital that they understand how housing equity can help navigate and manage their various financial obligations in retirement. The variety of products now on offer in the later life lending market means that consumers with varying needs are able to find the right option that is suited to their circumstances and ensure that they are able to enjoy a more comfortable retirement.”
Jim Boyd, CEO at the Equity Release Council, added: “more2life’s insightful Later Life Lending Report reveals the potential scale of the long-term impact the pandemic may have on the finances of the UK’s older generation, with debt becoming more common for people in later life.
“To address the challenges this presents, it is crucial that older consumers understand what options are available to them. While not suitable for everyone, for certain consumers, equity release – which enables over-55s to release value from their property – can provide an important option to help support individuals and their families.
“As a long-term commitment made after careful consideration, consumers looking to release equity safely should always use a Council member as this ensures structured financial advice, independent legal advice as well as robust and clear product safeguards. Combined, these measures provide greater protection than any other later life property-based loan.”