Asset rich pensioners still reliant on unsecured debt

Unsecured debt among retired homeowners has risen by 16% in the last year as retirees turn to credit cards, personal loans and overdrafts to make ends meet - despite sitting on over £200,000 of housing wealth.

Related topics:  Retirement
Rozi Jones
12th January 2015
retirement nest egg savings annuity pension

According to the Equity Release Council's Pensioner Debt Index, average credit card borrowing is up by almost £100 (29%) from £498 to £594, outstanding overdrafts are up by £28 (47%) from £60 to £88, while personal loan commitments have risen by £13 (2%) from £609 to £622.
 
Two in five (40%) have admitted to using a credit card to pay everyday household bills and expenses in the last year, while 6% would be open to borrowing money from a payday loan or doorstep lender.

While 76% identify savings as their first choice for raising funds, almost one in ten (9%) have no savings; almost one in five (17%) have less than £5,000 and nearly one in four (22%) have less than £10,000 saved.
 
After savings, 84% of over-65 homeowners would seek a bank loan if the need arose, yet many could find their options are restricted by lenders’ criteria that often require borrowers to have an income and therefore exclude many retirees on these grounds.

Yet with an average house price of £249,568 and an average mortgage of £57,062, the average pensioner has £192,506 of equity in their property. However, many will have more equity available than this as 79% are mortgage-free.
 
Among those with a mortgage, 63% have a capital and interest repayment mortgage while more than one in three (37%) have an interest-only mortgage.
 
Many equity release plans in the market offer loan to values beginning at 20%, which – based on an average house price of £249,568 – would give the typical 65+ homeowner access to almost £50,000 (£49,914) in extra funds to help with daily living costs or one-off expenses. This sum is twice the size of the average pension pot at retirement.

Nigel Waterson, Chairman of the Equity Release Council, comments:

“These figures suggest that older generations are not finding it any easier to get to grips with the cost of living. Unsecured credit is clearly helping to manage the burden of monthly bills or extra expenses. This often proves to be little more than a short-term solution as people progress into retirement.
 
“Lenders are understandably reluctant to extend the offer of credit once people’s work income dries up. There is also a question of sustainability when it comes to clearing debts – if people rely on a lump sum from their pension, there is a risk they will find those savings running low at a later point in life.
 
“The concentration of housing wealth among older generations should be an enabler for greater lending beyond the age of 65 along with the confidence that repayment obligations can be met. In the last year, the equity release market has welcomed increasingly flexible products and we await the arrival of more providers in 2015 to help older consumers lead the lifestyles they have worked for throughout their lives.”
 
“The arrival of the guidance guarantee on the back of the pension reforms means that 2015 will be the year when people begin to take greater stock of their available assets on the approach to retirement. These figures suggest that housing wealth will play a key role in people’s personal budget calculations.
 
“Long term house price growth has left many older homeowners sitting on a personal property fund that can transform their financial outlook in later life. Equity release should be considered across the board as one of a variety of options on the table, so people make the right decisions and use all their available assets to secure the most comfortable retirement possible.”

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