Mortgage warning for retirees as half a million still owe thousands in debt (Image: Getty)
More than half a million retirees in the UK still need to pay off their mortgages, averaging tens of thousands of pounds each.
SunLife’s third Life Well Spent report, which surveyed more than 2,000 people over 50, discovered the vast majority of pensioners are homeowners, and most (72%) own their home outright.
However, 5 percent still have outstanding mortgages, with an average debt of over £60,000 and monthly payments of £766.
Retired over-50s in the UK carry an average debt of £17,440 across all types, with monthly repayments exceeding £600 – adding up to £7,226 annually.
With an average household income of £31,064, this means retirees are allocating nearly a quarter (23%) of their income to debt repayments.
Retired mortgage holders are estimated to owe more than £60,000 on average. (Image: Getty)
Mark Screeton, CEO at SunLife said: “According to our research, almost a third of retirees are in debt of some sort, with almost half a million still paying off their mortgages. And while inflation may have dropped from 6.7% this time last year, the cost of living – including the increasing cost of debt – is still having a huge impact on the personal finances of retirees.”
Homeowners over 55, whether mortgage-free or with an outstanding loan, could consider “equity release” to help manage or clear existing debts, Mr Screeton suggested.
Equity release allows homeowners aged 55 and over to access tax-free cash tied up in their property without needing to sell or move. With home values having surged by 317% on average, SunLife data indicates that many retirees have significant property equity after living in their homes for an average of 24 years.
Today’s retirees, who typically purchased their homes for around £131,991, may now see their properties valued nearly £300,000 higher.
The most common form of equity release, a lifetime mortgage, is still a type of debt. Homeowners can choose to make payments covering the interest or opt for no repayments at all, which allows them to use their income for retirement expenses instead of debt.
The loan is repaid through the home’s sale upon the homeowner’s passing or a move to long-term care. For those who make no repayments, however, compound interest can grow quickly, potentially reducing the home’s equity for heirs. Nonetheless, with a “no negative equity guarantee,” the debt will never exceed the property’s value.
Mr Screeton added, “Most retirees (69%) say they don’t want to move, and equity release offers a way for some to release cash from the home without having to move.”
Homeowners typically release between 20% and 60% of their home’s value, with older homeowners generally able to release more. For those with an outstanding mortgage, this debt must be cleared with the equity they release, with any remaining funds available for other expenses, including clearing other debts.
SunLife found that 33% of equity release users put some of the funds toward repaying existing debts.
Mr Screeton noted: “Equity release is still a loan. But for those living on a fairly small income which is being eaten into by their debt repayments – including outstanding mortgages – the benefit is that they wouldn’t have to make those monthly mortgage payments anymore.
He explained: “Even if they chose to make small repayments to cover the interest on the equity release loan, it could still be less than the monthly repayments on a standard mortgage or loan.”
However, Mr Screeton warned that “equity release isn’t right for everyone, so it’s best to speak to a financial advisor to explore the options that fit your specific circumstances.”
