Older borrowers ditch mortgages as equity release rates rise

20th February 2024

Latest figures from UK Finance has found that the number of retired people with mortgages has decreased by 30.56% in the past year.

The data showed that there were 29,060 new mortgages taken out by older borrowers (over 55) in the last three months of 2023 – down 37.1% in a year. The value of this lending was £4.1bn, which was down 42.4% compared with the same quarter a year previously. 13,160 of these borrowers were in work, and 1,000 retired.

Around half of new mortgages for the over 55s were for house purchases or remortgages (14,625) – down 20.95% in a year. 6,710 of them were new lifetime mortgages (equity release) – down 40.14%

There were 255 retirement interest-only mortgages (equity release where you pay interest rather than it rolling up) – down 43.3% in a year, 7,980 were buy-to-let loans or remortgages – down 52.86% in a year

Residential later life loans make up 7.38% of residential loans and buy to let later life loans 21.98% of all buy to let loans.

There were 6,710 new lifetime mortgages advanced in Q4, down 40.1% year on year. The value of this lending was £520mn, which was down 57.4% compared with the same quarter a year previously.

Simon Webb, Mnaaging Director of capital markets and finance at LiveMore said “It is indicative of our still-turbulent market that, despite an ageing population and an increase of later life mortgage products available, we’re seeing this sharp decrease of 37% in loans to older borrowers in Q4 2023 compared to the same quarter in 2022. That said, borrowing was unusually high following the 23 September 2022 Stamp Duty Land Tax (SDLT) increase to thresholds, when the over-55s realised they could tap into the equity in their property.

“When we see these types of figures it rings alarm bells about the potential increasing number of mortgage prisoners in the UK. Interest-only mortgages can help mortgage prisoners who can’t meet affordability criteria as well as those with interest only mortgages due to mature but have no repayment plan in place. Without suitable products, these two groups of customers would otherwise have to sell up or pay very high interest rates.”

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “Older borrowers are ditching mortgages by the bucket-load, thanks to higher interest rates. Hundreds of people are focusing intently on repaying the debt before they put their feet up, thousands are delaying equity release, and the number of older landlords snapping up new buy-to-let loans has more than halved.

“Higher house prices and more complicated personal lives have been driving more people to pay their mortgage later in life. It means that, all things being equal, we’d expect the numbers of retirees still paying the mortgage to be rising. Clearly, sky high mortgage rates have turned the tables, and persuaded people to double down on their efforts to repay their debts before retirement – to avoid entering their golden years weighed down by huge monthly repayments. The number of retired people with new mortgages is down almost a third in a year.

“If people are repaying their mortgage alongside making generous pension contributions, there isn’t anything wrong with this. The concern is that some will have compromised on pensions, stocks and shares ISAs and savings in order to maximise mortgage repayments. Later in your working life, when children have often left home, has typically been a time when people have been able to prioritise putting money aside for the future, so missing this opportunity could have a profound impact on their financial resilience in later life.

“Equity release is also off the table for thousands of people. The rising cost of these loans means people need to either pay more interest each month or see more of it roll up, and devour the equity in their home. Thousands will be delaying equity release until cheaper deals emerge, but they risk struggling on low incomes in the interim – especially after two years of rapidly rising prices when food and drink prices alone have shot up by 25%.

“New buy-to-let mortgages have fallen off a cliff among older landlords, with the number of these loans halving in a year. Given that older people make up more than a fifth of all buy-to-let loans, this has a wider effect on the broader market. As more older people decide that being a private landlord isn’t as rewarding or as tax-efficient as they had hoped, it means they’re selling up, which puts more pressure on rising rents again.

“The more positive news is that the pressure has been easing since these figures were released, and lower mortgage rates will have taken less of a toll in recent months. However, falling mortgage rates have stalled more recently, as the market digests the fact that inflation is more stubborn than they expected. It means we can’t rely on swift rate cuts to get us out of trouble financially in retirement.”