The later life lending market is set to almost double in size over the next decade, according to new research from the Centre for Economics and Business Research (Cebr), on behalf of More 2 Life.
By the end of 2019, lending is expected to reach £295bn – rising to more than half a trillion (£548bn) by 2029. This amounts to an 85% increase over a decade, suggesting that while the amount of debt is continuing to grow, it has actually slowed down slightly. In 2014, over-55s owed £200bn and are predicted to hit £397bn by 2024 – a 98% increase over a 10-year period.
While older age groups in this demographic fare better, the report also finds that the over-65s market will accumulate a total of £91bn of debt by the end of 2019, an increase of £5bn on last year’s findings. This is expected to increase by a further 117% in the next 10 years, reaching £199bn by 2029.
A combination of factors is likely to be driving the growth in amount of later life lending including the increase in older households, rising house prices resulting in higher mortgage values, and consumers who are increasingly comfortable using unsecured credit.
Analysis also suggests that the 65-74s have the second lowest amount of net yearly savings (£3,100) after expenditure and income has been taken into account. This is just over 60% lower than those aged 50 – 64 (£8,100) and only slightly higher than those under 30 (£3,050). With a typically fixed income and just £3,100 on average to meet future costs or put into a savings account, the older generation is particularly vulnerable to sudden unexpected costs or increases.
Indeed, 48% believe they would struggle to cover an unexpected bill of £5,000 and 35% say that their expenditure exceeds their income.
The research also found that 14% of over-55s surveyed have a mortgage on their property; 68% of these individuals report having a repayment mortgage, compared to 23% with an interest-only mortgage.
Homeowners aged 65 – 74 who are still paying off a mortgage owe an average of £120,000. This is higher than the average for 55 – 64-year olds currently repaying a mortgage (£113,000). Those aged 75 – 84 who are paying off a mortgage owe over £78,000 on average.
In 2012 there were 3.2m interest-only mortgages outstanding, falling to 1.7m in 2017 – a 46% decline. The total value of outstanding interest only mortgages was £250bn in 2017, down from £400bn in 2012.
Dave Harris, chief executive officer at More 2 Life, said: “With more people buying their first homes later in life and the increasing use of unsecured debt, we are finding that more people are entering retirement still committed to ongoing repayments. While this might be something that can be managed while someone is working, it is harder to sustain when you are on a fixed income.
“We expect to see this trend continuing and by 2029, over-55s will hold £548 billion worth of debt. Not only are we seeing debt levels increase, but 65-74 year olds have just £3,100 left at the end of the year to save, invest or use to meet any unexpected expenses or manage additional costs. This is a worryingly small safety net and suggests that managing debt in later life may well become the norm for some people.
“One potential solution to this – and other issues facing over-55s who are trying to make their incomes last for increasingly longer retirements – is to consider how their housing equity can help. Later Life lenders have stepped up to this challenge and we are seeing increased flexibility as well as a wider choice of products designed to cater for today’s retirement lending market. However, we must ensure that we do not become complacent and with growing numbers of consumers interested in how they can access their housing equity, it is up to us to lend a helping hand to ensure they are able to enjoy the retirement they deserve.”
