The amount of debt held by the over-55 in the UK is set to drop from £226bn in 2019 to £207bn in 2021, shows research carried out by More 2 life.
This fall in debt – of which both secured and unsecured is counted – is down to what More 2 life and economics consultancy Cebr, who helped with the research, dub ‘corona caution’.
The firms point to figures from the Office for National Statistics, which show that among larger savings amassed generally since the start of the lockdown, those aged 65 to 74 have saved an extra £83 a week over those below 30 years old.
The research adds that debt levels will grow rapidly in the event of economic recovery. Boosted consumer confidence alongside an erosion in pension values – with 89 per cent of people asked having seen a pension pot fall of 15.2 per cent on average in Q1 2020 – leads More 2 life to forecast debt levels of £300bn by 2030.
More 2 life chief executive Dave Harris says: “The coronavirus pandemic is having a huge impact on the way over-55s spend their money. The nationwide lockdown, coupled with the heightened economic uncertainty, has caused many retirees to become more cautious and rein in their spending on larger or discretionary goods.
“However, although we are expecting to see a short-term fall in borrowing by the over-55s, it is clear that this will not be a lasting trend.
“Almost a third of this demographic will experience a hit on their finances and are expecting their debt to rise as a direct result of the pandemic. For those who are impacted financially and need to draw on extra funds, it is crucial that they are made aware of the solutions that can help them bridge this income gap.”
Equity Release Council chief executive Jim Boyd adds: “As a long-term commitment made after careful consideration, consumers looking to release equity safely should always use a Council member as this ensures structured financial advice, independent legal advice as well as robust and clear product safeguards. Combined, these measures provide greater protection than any other later life property-based loan.”
Canada Life head of marketing, insurance Alice Watson comments: “Despite an expected drop in debt for the over-55s, the interest-only mortgage time bomb is still a huge issue, with an estimated 40,000 loans set to mature this year.
“So it’s unsurprising that using equity release to clear an outstanding mortgage is one of the most popular reasons for taking out these products.
“However, equity release is a long-term commitment that should be carefully considered. It’s important for customers to be aware of the impact of converting unsecured debt to secured debt, and this is where advisers have a significant role to play.”
