While the recession following the economic crisis of 2008 is officially over, thousands of elderly people are still feeling the pinch and facing economic uncertainty.
Inability to access lending
Many of the people laid off during the economic crisis were in the final years of their working lives, leaving them with shortages in their retirement funds. Portfolio balances fell, and for some there was little or no time to recover from these losses. Many seniors found themselves with no equity in their homes at a time when their incomes were falling.
This struggle is compounded by their difficulty in accessing borrowing in the face of tighter regulations and the mortgage industry failing to innovate to meet their needs.
The Financial Conduct Authority, the mortgage industry regulator, is looking to launch a market study this year to identify the retirement market as a core challenge for mortgage lenders and consider regulation to encourage more innovation.
Equity release
Older homeowners look likely to rely on the equity built up in their homes; however, after taking out equity release products when house prices were high, thousands of elderly people are finding that the amount they now owe leaves them with nothing.
For older people, equity release is a way of obtaining a lump sum using the value of their home while continuing to live there. No repayments are made on these life loans; instead, compounded interest is added to the capital. The loan and interest are repaid when the owner sells the house or, as is often the case, dies.
These equity release loans were issued on the premise that property prices would keep rising; however, property prices are one-third lower than at their highest level in early 2007. The lender is culpable if the property is worth less than the amount borrowed. Families are finding themselves in situations where once homes are sold, the amount owed leaves nothing and inheritances are wiped out.
Customers who have released the equity of their home with a life loan need to be aware of the liability they are accumulating and take advantage of free debt advice from organisations such as debt solutions through Carrington Dean to address the issue.
The long-term effects of the recession continue to be felt by the elderly and many may never financially recover.