Debts are weighing down the over 55s so much that many have no choice other than borrowing against their homes to clear what they owe on retirement.
The average pensioner retires with £34,000 of debts on credit cards, mortgages, loans, overdrafts and other borrowings.
Rather than pay this money with pension cash, one in three retired homeowners cash in on their homes to settle their borrowing, according to a study by equity release firm Key Retirement.
A quarter of pensioners tap into equity release to pay down interest-only mortgages.
The research also showed a fifth want to settle home loans of more than £50,000, while 7% have mortgages of more than £100,000.
Older borrowers have higher debts
More detailed analysis of pensioners paying off mortgages found 43% triggering equity release owed an average of £63,000 on interest-only loans and lacked savings or resources to settle the debt.
Equity release was also an escape for a quarter of homeowners with credit card debts that funded lifestyles they could not afford to maintain on a pension.
The average credit card debt was £10,900.
The survey also revealed that the older the borrower, the higher the debts – and that men were more likely to owe money.
The highest debts belonged to those aged between 71 and 75 years old, while 61% of equity release borrowers were men, compared to 39% who were women.
Equity release is a way for the retired to raise cash based on the value of their home rather than downsizing.
Sometimes called a ‘lifetime mortgage’, equity release schemes are loans secured against a home.
Equity release options
Rather than pay monthly repayments, the interest accumulates and is paid off when the home is sold or the owners die or move into long-term care.
Some lenders let homeowners take out interest only loans, so only the amount borrowed is repaid when the property is sold.
Points to consider include how quickly a loan grows when interest is added and no payments are made; early exit fees if there is a change of mind about selling and how receiving income might affect means-tested benefits.
“Many lenders will not offer someone who has retired a loan because they have no income,” said Dean Mirfin, a director of the company.
“Equity release is an option that pensioners in trouble with debts overlook. Tapping into the cash locked into the family home can release the cash they need to take away the stress of owing money.”