Debt among the over 55’s set to rise by £10bn in 2021 as consumer confidence returns, report by more2life.
The UK’s over-55s are expected to borrow £10bn more in 2021 as consumer confidence returns to a post-Covid economy, according to new research from the equity release lender and economics consultancy, Cebr.
Research reveals the total amount of both secured and unsecured debt owed by the over-55s will rise from £226bn in 2020 to £236bn this year. Returning consumer confidence follows a period of uncertainty for older households with 27% saying their financial situations have worsened since March 2020
Optimism sees borrowing rise in the short-term
This increase is expected due to optimism among older generations as the UK’s economy slowly recovers from the pandemic and spending on ‘big ticket’ items such as cars, mortgages and home renovations return. The research also shows that 76% of the overall debt level in 2021 will be driven by those aged 55-64, who are expected to borrow £180bn by the end of this year, a rise of £9bn since 2020.
Today’s figures contrast starkly with more2life’s research last year which suggested that debt amongst over-55s would fall to £207bn in 2021 as lack of consumer confidence caused people to delay purchases and tighten their belts. However, with the economy recovering, confidence has returned, particularly in the housing market where demand – buoyed by the stamp duty holiday – is significantly higher than in pre-pandemic times.
Credit card debt set to increase
The level of unsecured debt, such as credit card debt and bank loans, is set to rise by 1% this year. However, while we are likely to see relatively modest growth in this type of borrowing in 2021, the forecasts show that by the end of 2022 these levels will have risen by a further 10% as older generations navigate the fallout of the crisis and turn to short-term forms of debt for support.
In total, the over-55s will owe almost £20m in unsecured debt next year, with £4m of this borrowing in the form of credit card debt.
Confidence follows financial uncertainty for older households
The increase in debt expected over the next 18 months follows a period of financial uncertainty for many older households. Over a quarter (27%) of over-55s say their general financial situation has worsened since March 2020 with the employed hit harder than the retired. Among part-time workers, 43% said they had seen their financial circumstances worsen compared to 15% who said their situation had improved.
This could be attributed to these individuals being put on furlough or seeing their wages cut. Indeed, figures from the Office for National Statistics reveal that over a quarter (28%) of furloughed employees in the UK are aged 50 and over, and this cohort were more likely to report working fewer hours than usual because of Covid-19 between December 2020 and February 20211.
Improved financial position due to drop in spending
Conversely, 17% of over-55s said their general financial situation had improved since the start of the pandemic. Retired individuals were most likely to say this compared to those who said their circumstances had worsened (20% vs 14%). The primary reason over-55s gave for their improved financial position was a drop in spending, with 68% of respondents agreeing this was the key factor.
Dave Harris, Chief Executive Officer at more2life, comments:
“There’s no doubt that the events of the last 15 months have been both unexpected and challenging for most of us. And the older generations are no exception, with more than a quarter of over-55s saying they have seen their financial position deteriorate due to the pandemic. However, as our research shows, older customers are also relatively optimistic about the UK economy’s recovery, with discretionary and ‘big ticket’ spending set to rise. As a result, borrowing among over-55s is expected to increase to higher levels than previously forecasted.
“Yet, despite this confidence, there is no doubt that that some over-55s are or will struggle as furlough ends and life returns to a more normal pattern. Our research suggests that they may find themselves turning to short-term forms of debt, such as credit cards, over the next year. With the potential for this borrowing to grow to unmanageable levels, it is important they are made aware of all of their options.
“There are a range of products on offer in the later life lending market, meaning that consumers with varying needs can find an approach that enables them to manage their borrowing and enjoy a more comfortable retirement. However, it’s crucial they seek advice that helps them to make the right choice for their unique circumstance, whether this involves equity release or an alternative solution.”