The path of homeownership is changing. No longer is it typical for someone to buy a home in their 20s, trade up in their 30s and 40s and pay off the mortgage in their 50s and 60s – these days, being able to enter retirement with little or no mortgage debt is becoming an increasingly distant dream, with research predicting that the mortgage debt of those aged 65+ could almost double in the next few years.
That's according to a new report by the International Longevity Centre-UK (ILC-UK) and the Building Societies Association (BSA), which shows that borrowing into older age is set to become increasingly mainstream within the next decade. Indeed, the amount of mortgage debt held by retirees is expected to increase by more than £19 billion by the year 2030, rising from £20.1 billion today to £39.9 billion, as more and more people enter retirement with a mortgage still to be paid.
Much of this is thought to be due to changing demographics and current economic trends, such as house price inflation, stricter credit conditions and low wage growth, all of which is impacting when people can buy, trade up and pay off their home.
The financial crisis has seriously taken its toll, too. Since then, homeownership among 20-29 year-olds has fallen from 53% to 38%, noted the report, while for those aged 30-39 it's fallen from 73% to 65% over the same period. Many first-time buyers are finding it increasingly difficult to take that first step, thanks in no small part to a limited supply of suitable homes, higher house prices, greater student debt, low income growth and the difficulty in saving for a deposit that follows.
As a result of the changing path to homeownership, the time by which mortgages are paid off is also changing – over 6% (equating to around 1.42 million people) aged 35-64 won't have paid off their mortgage before typical retirement age given the current term of their loan, which means many could have to use their retirement income to continue making repayments.
This trend looks set to continue, too, as if nothing changes, it'll become increasingly common for consumers to buy their first home in their late 30s and 40s, potentially with longer mortgage terms. This means they could be entering later life with significant mortgage debt – particularly if they trade up later, too. Indeed, it's predicted that 58% of all housing wealth in the UK (an estimated £3.3 trillion) will be held by over-65s by 2030, and much of that could be mortgaged.
It's hoped that the market will quickly adapt to these changing dynamics, ideally making lending into later life more commonplace and with fewer restrictions. After all, rising longevity means many people are working well into traditional retirement age – currently, one in 10 of those aged 65+ remain in employment – which means there'll be greater capacity for those individuals to borrow into older age, and make the necessary repayments.
"The focus must be on adapting to a changing market," said Paul Broadhead, head of Mortgage Policy at the BSA. "We must also respond as an industry to reflect the changing needs of customers. This will include an increasingly intergenerational approach to homeownership, as parents and grandparents borrow to release some of their housing wealth to support the younger generation. It is the combination of multiple factors that will drive greater levels of mortgage borrowing in later life."
Ben Franklin from the ILC-UK added: "The housing market must better adapt to our ageing society, building more homes for all ages across a range of tenures. Over the course of a lifetime, including in retirement, consumers will need to have access to the right mortgage products and advice in order to maximise their long run financial wellbeing. Building societies have made a good start in this regard, but this is a whole of market challenge that will ultimately need whole of market solutions."
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