A retired woman stares out of a window
More than one in six people retiring in Britain this year expects to take a further seven years to pay back debts. Photograph: Paul Doyle/Alamy

One in four people planning to retire this year will still have a mortgage or other debts to pay off and will typically owe about £24,000, according to an insurer’s report.

The Prudential insurance company found the proportion of people who expected to retire in debt this year to be at its highest level for seven years, and that the level had risen to 44% in London.

The research follows a study by the Financial Conduct Authority which found that 2017-18 would be the first of three “peak periods” when large numbers of interest-only mortgages would mature.

The Financial Conduct Authority says 1.3 million homeowners may not be able to pay off maturing property loans.
The Financial Conduct Authority says 1.3 million homeowners may not be able to pay off maturing property loans. Photograph: David Levene for the Guardian

The FCA has warned that almost half of all people with interest-only home loans (about 1.3m homeowners) might not have enough money to pay off their home loans when they mature, fuelling fears that some might need to keep making monthly mortgage payments into their old age.

The Prudential said its findings showed that retiring with outstanding debts was once again a growing problem. The finding was that 25% of those retiring in 2017 would owe money – up from 20% last year.

The Bank of England recently warned about the high level of household debts. The bank’s governor, Mark Carney, said the bank was watching the growth in debt levels; unsecured debt, which included credit cards and overdrafts, was rising at its fastest pace for 11 years.

The Prudential’s annual research into the financial aims of people planning to retire in the year ahead showed that this year’s retirees with outstanding debts owed on average £24,300 – up from £18,800 in 2016. It was the first growth in retiree debt since 2012, when the figure peaked at £38,200.

Mortgages have become a bigger source of debt for the “class of 2017” compared with previous years. Nearly four in 10 (38%) of those expecting to retire this year with debts owe money on property. Credit cards are also a big debt issue, with 51% of people with debt owing money on plastic at retirement.

The Prudential said that those planning to retire in 2017 with debts but expecting to clear them, would need nearly three-and-a-half years on average to pay off the sums owed. The repayments will swallow up an average of £230 a month. However, more than one in six expected to take seven years or more to pay off their debts, and one in every 14 feared they would never clear the money they owed.

Vince Smith-Hughes, a retirement income expert at the company, said: “For most people the move from work into retirement will see them having to cope with a drop in their income. So having to use precious retirement income to pay off debts could make life even more tricky for the newly retired.”

Some commentators have claimed that mortgage and debt issues are set to raise the number of older people raiding equity locked in their homes for cash to pay off a home loan or other borrowings. Sales of equity release plans are expected to rise this year.

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