Equity Release  

Role of advice as debt levels among retirees rise

  • List the drivers behind rising debt levels among the over-55s.
  • Describe what the later life lending market can do to meet demand among consumers.
  • Identify the role advisers play in offering holistic financial planning.

While credit card debt and overdraft facilities are a common way for people to manage their finances when faced with sudden and unexpected bills, the research found an alarming number of people are using these as borrowing tools to pay for simple day-to-day living costs, rather than using this money for discretionary or larger purchases.

This is backed up by the data, highlighting that the main reason over-55s hold debt is to cover day-to-day expenses (29 per cent), with a further 26 per cent saying they have debt to help pay for other outstanding debt and 24 per cent saying they use the money for a large purchase, such as a holiday or a car.

The increased reliance on unsecured debt is unsurprising given that the report also found that income levels are continuing to fall with age.

In fact, many 65 to 74-year-olds are estimated to have just £3,100 left at the end of the year to save, invest or use for future spending, which shows that they have a worryingly small financial safety net.

And almost half of over-55s (48 per cent) said that they do not have enough savings to cover an unexpected £5,000 bill.

This combination of factors means many people are facing ongoing difficult decisions about how to manage their income, assets and outgoings during retirement, a period of time that is now longer than ever before.

Add to this the fact that in 10 years’ time there will be significantly more over-55s than there are now, and it means the total size of the debt market for older people will have increased even further.

Addressing the problem

So how can the later life lending market – which now encompasses equity release, later life mortgages and retirement interest-only mortgages – prepare for this growing number of potential consumers?

The answer lies in offering a wider variety of solutions, modern lending features and investment in new technologies.

There have been huge levels of growth in the equity release sector in recent years – a trend that is likely to continue as the UK’s population continues to age.

Recent research by Key Partnerships reveals that there are now 220 equity release products available to consumers; in 2014, there were only 40, according to Moneyfacts data.

While the surge in demand for later life lending products is good news for lenders, the larger volumes of business means there is no room for complacency.

Firms will need to ensure they continue to invest in technology and develop products to keep up with demand and meet the extraordinary range of lending needs of today’s retirees.