In 2008 the number of those aged 65 and over who came to Key Retirement Solutions and used equity release to relieve the burden of mortgage debt increased by 38.72% compared to 2007.
The findings also reveal that this financial burden does not ease as the retirement years' progress. The 70 and over age group carry the greatest burden of mortgage debt with loans averaging £48,442, compared to the 65-69 age group, with average mortgage debt of £34,272.
Two potential reasons why so many pensioners have outstanding mortgages are necessity and the failure of an investment vehicle, such as an endowment, to meet the total repayment balance. The necessity aspect for many has arisen in the years prior to retirement when to be able to afford to buy a property the only option was to have a mortgage over a term which extended into their retirement. The Financial Services Authority (FSA) are rightfully concerned about the ability of consumers to afford mortgage payments in their retirement when future income and affordability can be so unpredictable. In their leaflet, "No Selling. No Jargon, Just the facts about paying your mortgage." they state, "Beware of having a mortgage term that continues past the age you plan to retire unless you're sure you'll be able to afford the payments then."
The average mortgage debt for those aged 65 and over is £43,069. This is considerably lower than the average amount outstanding across all mortgages of £104,000. For some this is as a result of a shortfall from an investment vehicle, typically an endowment. Borrowers are left with a smaller loan balance which they never intended to have into their retirement. The FSA guidance to those faced with this situation in their leaflet, "No selling. No Jargon. Just the facts about dealing with your mortgage shortfall", suggests equity release as one of the solutions to this predicament to meet the shortfall.
Dean Mirfin, Key Retirement Solutions Group Director, said: "Whilst we expect that some of today's pensioners will have the need to have an outstanding mortgage, we are concerned at the potential scale of the problem. Naturally the numbers used are specific to those who have approached Key Retirement Solutions for equity release, but that said, if they are even partly reflective of the scale as a whole, today's and tomorrow's pensioners face a retirement in a position of debt which they had maybe not anticipated. It does not therefore come as a surprise that many of those faced with this scenario are looking to equity release as a solution to eradicate their mortgage debt to free up much needed income to further enhance their retirement years.
"Whilst many pensioners will be benefitting from the current low variable mortgage rates, many are on fixed rates which are considerably higher. In addition those lucky enough to have savings are suffering from the low levels of return since the rate cuts began in 2008.
"Many pensions linked to RPI face a slowdown in growth which will put yet more pressure on today's pensioners. Many will look with interest at what Alistair Darling has to say in his budget statement this week to see what hope comes, if any, to help lessen the burden faced by so many of today's pensioners, for whom little of what is designed to help the current economy will be of benefit."
Chris Tapp, Director of charity Credit Action, comments on Key's findings: "It used be assumed that the economic life-cycle was such that you borrowed when you were younger to leave you debt free and well set up to enjoy your retirement. These figures dramatically demonstrate how skewed this picture has become in recent years as people have been forced to borrow more and borrow for longer to afford property. This debt dependency is hugely concerning and something we as a society need to urgently address. For those millions already struggling with mortgages and other debts in retirement it is essential that they seek out good advice on the solutions available to them, such as equity release."
