Individuals over the age of 65 are expected to owe £86bn by the end of 2018, new analysis from the Centre for Economics and Business Research (Cebr) found.
The research - commissioned by equity release lender more 2 life, which is based on data from the Office for National Statistics and a poll of 2,000 consumers aged 55 and over – predict the retirement lending market will surpass the £142bn mark by 2027.
Last year’s research predicted that the total debt of over 65s would only reach £65bn in 2017 – but in reality, borrowing was growing significantly faster and the total was £13bn more.
The retirement lending market includes all types of secured and unsecured debt including mortgages, credit cards, overdrafts, loans, car finance, hire purchase, student loans, payday loans, and store cards.
The research found the average total debt held by 65 to 74-year olds in 2017 was also higher than expected, hitting £15,700 instead of the predicted £12,500. This is estimated to increase to £17,100 in 2018.
In 2018, the average mortgage debt of those aged 65 and over is estimated to stand at £86,000, which is 13 per cent higher than in 2013.
While the rapid growth of debt amongst the over 65s is hard to attribute to any single factor, this generation's use of interest-only mortgages, their borrowing trends and relatively modest pension savings are likely to have contributed to the rise, according to the Cebr.
Dave Harris, chief executive officer at more 2 life, said the rapid increase in retirement lending market “will only be exacerbated by an ageing population, people buying houses at a much later stage, and shrinking pension pots resulting in low retirement incomes”.
“For growing numbers of people aged 65 and over, financial products that draw on the resource of housing wealth may well turn out to be the optimal way for them to solve the financial challenges they and their families have to face in future."
For Dr Louise Overton, College of Social Sciences, University of Birmingham, “the use of housing wealth-based products like equity release has the potential to play a hugely important role, relieving budgetary strain and offering more financial freedom”.
She added: “As the industry continues to bring new products to market, there is a definite need for a more joined up approach across the financial services industry, consumers and professional bodies, to foster the right environment for helping the market to develop more effectively.
“The many opportunities that this new retirement landscape offers can, and indeed should, be realised in a way that delivers the best possible outcomes for all consumers.”
maria.espadinha@ft.com
