Special Features

Debt Awareness Week is an opportunity for advisers to initiate conversations with older clients about unsustainable, short-term borrowing

Stuart Wilson | more2life
25th March 2021
Stuart Wilson more 2 life
"As the UK navigates the economic fallout of the pandemic, financial advice will be paramount for those retirees who are unsure about how to manage their borrowing in the current climate."

Debt continues to be an issue faced by many UK households, yet it’s still not widely discussed or acknowledged. Indeed, debt management company Lowell found that seven in 10 people in the UK have 'hidden debt' that they do not discuss with others, primarily due to feelings of embarrassment.

While excessive borrowing at any age is a cause for concern, older people with unmanageable debt is arguably a bigger problem as they have less time in employment and fewer employment options that will allow them to make repayments. And if anything, the Covid-19 pandemic is only set to worsen the situation.

more2life’s latest Later Life Lending research estimated that the UK’s over-55s will owe £207bn in both secured and unsecured debt by the end of this year, with this figure set to increase to £300bn by 2030. It is likely that this increase in borrowing could be caused by those who have been faced with job loss or a drop in retirement income during the crisis, as many of these individuals seek out short-term, unsecured forms of borrowing in order to secure extra funds.

Without open and informative discussions around the impact of short-term borrowing, many of these retirees will be in the dark about alternative solutions that could be better for them in the long run. Debt Awareness Week presents a clear opportunity for advisers to initiate conversations with clients and their families around these issues and educate them on the financing options available.

Open up the conversation

As the UK navigates the economic fallout of the pandemic, financial advice will be paramount for those retirees who are unsure about how to manage their borrowing in the current climate. Advisers should therefore use this time to check in with older clients and gauge how they are faring during the pandemic, whether they are struggling with debt and how they can best manage this.

Without guidance from a later life adviser, many people could resort to increasing their unsecured borrowing to help make ends meet, even though this might not be sustainable in the long-term. This is where advisers can talk through the options available and help clients make informed decisions about which financial solution will best help them achieve their goals in later life.

Checking in with clients regularly should not only be a priority for advisers as the crisis progresses, however, but also beyond it, so that borrowers are aware of what support is available if their debt issues worsen in the future.

How equity release can help

A significant spike in buyer demand has caused average property prices to grow in recent months – something that has benefitted the over-55s more than any other demographic. Last year, house prices rose by 8.5%, the highest annual growth witnessed in six years. As a result, capitalising on their built-up property wealth could present many older homeowners with a feasible way of refinancing outstanding debts in later life.

Key’s latest Market Monitor showed that over a quarter (28%) of equity release customers used their housing wealth to repay unsecured debts in 2020 – the second most popular reason for using equity release after home and garden improvements. This is largely down to the flexibility of equity release plans, with borrowers now benefitting from greater control over how they access their housing wealth and how they use it.

Advisers can discuss benefits like these when speaking with clients who are interested in learning more about solutions that can help them manage debt, so they are better able to tailor plans to borrowers’ individual circumstances.

Hidden debt among the over-55s is increasingly concerning, so advisers have a duty to ensure that any borrowing is sustainable and manageable for this demographic in the long run. Prompting clients to talk about debt will better enable advisers to discuss how borrowers can solve these issues with tools like equity release. I hope to see advisers rising to this challenge and raising awareness of debt among the over-55s so that more people can enjoy a more stable and comfortable retirement.

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