New research into recent trends in the housing and mortgage lending markets has revealed that borrowing into older age is likely to be much more common over the next ten years.
According to the study by the International Longevity Centre-UK (ILC-UK), supported by the Building Societies Association (BSA), the amount of mortgage debt held by over-65s is set to increase by more than £19 billion by 2030 (from £20.1 billion to £39.9 billion).
Researchers says that this shift in the customer base of the mortgage market is a result of current economic trends such as house price inflation, tighter credit conditions and low real wage growth.
They describe the mortgage market as undergoing a ‘marked evolution’ from the more traditional route of people 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.
Today, factors such as low supply of new homes and higher house prices, greater student debt, persistent low real income growth and challenges in saving for a deposit mean that many first-time buyers are delayed in taking that first step on the property ladder.
The lack of supply on the housing market was recently highlighted by the findings of a survey by RICS, which found that in April new instructions remained negative for a fourteenth month in a row at a national level, leaving average properties on estate agents books hovering close to record lows.
The ILC-UK study predicts that 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 ILC-UK projects that £3.3 trillion or 58% of all housing wealth in the UK will be owned by the over 65s.
This shift in the housing market is part of a wider cultural change in how we live our lives, say the researchers. 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 ten 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 first question for national policy-makers, including Government, is whether action should be taken to try and maintain the ‘traditional’ market,” commented Paul Broadhead, Head of Mortgage Policy at The BSA. “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. 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 added. “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.”
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