One in four people retiring in Britain this year will have outstanding debts, according to a study by insurer and pension fund manager Prudential.
High house prices means the figure is even greater in London, where 44 per cent of the new crop of retirees will still owe money.
Housing is a key part of the problem, with the proportion of retired debtors who are still paying off their mortgage standing at nearly four in ten (38 per cent), up from 33 per cent last year.
“A study by the Financial Conduct Authority… found that 2017-18 would be the first of three ‘peak periods’ when large numbers of interest-only mortgages would mature,” says The Guardian.
Interest-only mortgages, once commonplace, require the borrower only to pay interest during the term of the loan. Homeowners can either set up an endowment to pay off the capital at maturity, or rely on their home having increased enough in value to downsize and pay off the remaining debt from the equity.
However, previous FCA studies have shown as many as half of those with these loans, 1.3 million homeowners, may not have enough money to pay off their mortgage when it matures.
Credit card debt also remains a big issue, affecting a little more than half of all those who have debt in retirement.
The average indebted retiree will owe £24,300 in total, a significant increase from the average of £18,800 last year and the highest figure since the £38,200 from 2012, the first year of the study.
Alan Chan, director of London-based financial planning firm IFS Wealth and Pensions, told FTAdviser that for a lot of people retiring in debt was a conscious decision, particularly where property was expensive.
“Such people, he said, would often be planning to downsize or move out of London altogether upon retirement,” said the site.
An alternative option that is expected to increase in popularity is equity release, which is a mortgage-based product allowing people to release value from their home in return for giving up an ownership share.
Homeowners can typically stay in their property until death, at which point it will typically be sold, making it, Chan said, a “last resort” for those wishing to pass on an inheritance.