Equity Release

Later life borrowing falls sharply due to higher interest rates

Later life borrowing falls sharply due to higher interest rates
Christina Hoghton
Written By:
Christina Hoghton

Lending to older borrowers slumped 40 per cent in the last three months of 2023 compared to a year earlier.

There were 29,060 new loans taken out by older borrowers in Q4 of last year, tallying £4.1bn.

This was down 37.1% by volume and 42.4% by value, according to UK Finance.

The banking association data showed that many older homeowners chose not to borrow, as the cost of mortgages continued to rise.

What is later life borrowing?

Later life borrowing refers to three different things.

First, it simply means borrowing a standard mortgage beyond retirement age (usually around 65). This has become more prevalent in recent years as lenders have allowed borrowers to take mortgages into their 70s and beyond, as long as the payments are affordable.

Secondly, it refers to lifetime mortgages, which are the most common type of equity release mortgage. With these, the borrower releases a lump sum from their property wealth (equity). Instead of making monthly repayments to repay that loan, the interest rolls up and the total debt grows over time. It is repaid on death or a move into long-term care.

The third type of later life borrowing is a retirement interest-only (RIO) mortgage. This is also a type of equity release, but the borrower makes monthly payments to cover the interest on the loan.

This means the sum borrowed stays the same and is repaid on death. It’s unlike a lifetime mortgage where the interest rolls up and the debt grows. But with a RIO, the borrower must be able to afford monthly repayments.

All three types of later life borrowing fell sharply at the end of last year.

Equity release lending

There were 6,710 new lifetime mortgages taken out in Q4 of 2023, down 40.1% over the year. The value of this lending was £520m, down a significant 57.4% year-on-year (YOY), according to UK Finance.

There were 255 RIO mortgages taken in the same period, down 43.3% YOY.

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 (BTL) 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.”