It’s often said that given time, everything changes. This certainly appears to be the case when it comes to our attitudes towards later life borrowing.
According to new research from the Equity Release Council (ERC), as adverse financial circumstances cause people to get on the property ladder later in life than they would have liked, attitudes toward later life debt are also changing. Paying a mortgage into retirement is becoming less taboo. People are also becoming more willing to use their properties to enhance their retirement experience.
Here’s the lowdown.
[top_pitch]
What does the research show?
According to new data from the ERC, 45% of mortgaged homeowners under the age of 40 got on the property ladder much later than expected, compared to 29% of those over 40.
This delayed homeownership essentially means that nearly a third (32%) of homeowners with a mortgage have already ruled out being mortgage-free before retirement.
The most likely reason for delayed homeownership is the discrepancy between house price growth and income growth. A recent study from Nationwide shows that house prices have risen to 5.5x the annual salary of a first-time buyer. This is the highest ever ratio on record.
A 20% deposit on a home now equates to 110% of the pre-tax income of a typical full-time employee.
It’s not surprising, then, that according to ERC data, 43% of mortgaged homeowners under the age of 40 receive financial assistance from family or friends. In comparison, only 23% of those aged 40 and up receive similar assistance.
What about later life borrowing?
According to Jim Boyd, CEO of the Equity Release Council, the realities of delayed homeownership are also prompting people to reassess their attitudes toward secured debt in later life. As paying for a mortgage in retirement becomes less taboo, people are also becoming more accepting of later life debt, such as lifetime mortgages that allow them to take out a loan secured against their homes.
Boyd explains that for many people, secured debt in later life “can make the difference between financial hardship and enjoying a more comfortable lifestyle while also supporting family members”.
According to the ERC survey, 32% of people see it as a way to access money to improve their lifestyle. Meanwhile, 31% see it as a way to get money to help family members.
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Are there any cons to later life debt?
In short, yes, there are.
A lifetime mortgage, for example, means that you will have less to leave as an inheritance to your loved ones. You will also need to budget for things like legal fees, valuation fees and building insurance.
It can also affect your tax situation and your entitlement to means-tested state benefits such as Pension Credit and Universal Credit.
Before committing to a lifetime mortgage or any other form of equity release, carefully consider all of your options. An equity release adviser can be useful in this situation. They can assess your personal circumstances and help you to decide whether the move is right for you.
