Home borrowing over the age of 65 set to become more common in the UK

Home ownership in the UK is changing in response to economic, demographic and housing market trends, making borrowing into older age more common, new research has found.

The independent study from the International Longevity Centre and the Building Societies Association reveals that for people aged over 65 mortgage debt set to double by 2030, rising by more than £19 billion.

It explains that changes to housing market dynamics are being driven by low real wage growth, house price inflation, low supply of new homes and rising student debt as building societies are seeing a rise in mortgages for older customers.

During 2016 the proportion of new mortgages from the sector with a term beyond age 65 rose from 34% to 38% and a significant shift in the customer base of the mortgage market is predicted over the next 13 years.

It points out that the mortgage market is witnessing a marked evolution from the traditional route of individuals buying their first homes in their 20s, trading up in their 30s and 40s, paying off debt in their 50s and 60s and then entering older age with little or no mortgage debt.

Since the financial crisis, home ownership amongst 20 to 29 year olds has fallen from 53% to 38% and for those between 30 and 39 years old home ownership has fallen from 73% to 65%. Today, many first time buyers are delayed getting on the property ladder by factors including low supply of new homes and higher house prices, greater student debt, persistent low real income growth and challenges in saving for a deposit.

As the home ownership life cycle shifts, the time of life by which mortgages are paid off is shifting too, the research shows that over 6%, or 1.42 million people aged 35 to 64, will not have paid off their mortgage before retirement given the current term of their loan.

If nothing changes, it will become more common for consumers to buy for the first time in their late 30s or 40s, with longer mortgage terms from the outset. They will be more likely to trade up later in life and repay at least part of the mortgage from retirement income or draw more to fund needs in later life. By 2030, the report projects that £3.3 trillion or 58% of all housing wealth in the UK will be owned by the over 65s.

‘The first question for national policymakers, including Government, is whether action should be taken to try and maintain the traditional market. In my view the socio-economic changes lenders and consumers are already experiencing are unstoppable. So instead the focus must be on adapting to a changing market,’ said Paul Broadhead, head of mortgage policy at the BSA.

‘Top priority must be given to radically increasing housing supply across all tenures, including recognising shared ownership as a tenure in its own right. We must also respond as an industry to reflect the changing needs of customers,’ he pointed out.

‘This will include an increasingly intergenerational approach to home ownership, 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,’ he added.

The report also explains that this shift in the housing market is part of a wider cultural change in how people live our lives. With life expectancy having significantly increased, those who are 65 today can expect to live to 90. People today are also working longer, currently one in 10 people aged over 65 are employed. Due to these factors, as the population ages and people become more prosperous and likely to work for longer, there will be a greater capacity for people to borrow into older age.

‘The housing market must better adapt to our ageing society, building more homes for all ages across a range of tenures,’ said Ben Franklin from the International Longevity Centre-UK.

‘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,’ he added.