Homeowners aged 65 and above borrowed more from their credit cards, personal loans and overdrafts last year.
This led to a 16 per cent annual rise in unsecured debt for that age group, where the average amount owed per person grew to £1,546 from £1,336 in 2013, according to the latest Pensioner Debt Index produced by the Equity Release Council.
“These figures suggest that older generations are not finding it any easier to get to grips with the cost of living. Unsecured credit is clearly helping to manage the burden of monthly bills or extra expenses,” Nigel Waterson, chairman of the council, says.
An overwhelming number of retirees (76 per cent) pick dipping into their savings whenever times are hard as their first choice. Almost all of them (99 per cent) are open to use savings to raise extra funds.
While a credit card, a bank loan or an overdraft would not be the first choice for many people, more than three quarters of them would use all three of these options if they needed to raise funds.
What is worrying that even though it would not be the first choice for none of them, a small percentage (6 per cent) of retired homeowners would use a payday loan or go to a doorstep lender in case they are short of money.
Banks are making it tough on older borrowers as well, since the criteria for getting a loan is often linked directly to having an income. Nevertheless, going to the bank for extra cash is the second most popular choice of retirees (79 per cent) after using their own savings.
“Lenders are understandably reluctant to extend the offer of credit once people’s work income dries up. There is also a question of sustainability when it comes to clearing debts – if people rely on a lump sum from their pension, there is a risk they will find those savings running low at a later point in life,” Waterson comments.
He suggests equity release is a good option to consider when going into retirement as “long term house price growth has left many older homeowners sitting on a personal property fund.”
The typical 65+ home owner has £192,506 equity in their property. Given that a great number (79 per cent) of those owners are mortgage-free, their equity would be even higher.
There are a lot of equity release plans, offering loan-to-value options starting at 20 per cent. Considering that the average house price is £249,568, a good equity release plan would provide a retired homeowner with extra funds of some £50,000.
Equity release was first choice for only 1 per cent of the polled retirees, while 59 per cent of them said they would use this option to raise money.
Options that over-65s would consider to generate extra funds
|
|
% who would make this option their first choice |
% open to using this option to raise funds |
| My savings |
76% |
99% |
| A family member / friend |
4% |
74% |
| A loan from a bank |
6% |
84% |
| A credit card |
4% |
76% |
| Payday loan/doorstep lender |
0% |
6% |
| Equity release |
1% |
59% |
| Overdraft |
3% |
79% |
| Don’t know/not sure/other |
6% |
NA |
