More and more people over the age of 65 are stuck paying mortgages. Since June 2018 the number of New Zealanders with mortgages past the age of 65 has risen 15% – from 118,000 to 136,000, according to data from credit bureau Centrix.
It’s a scary number, says Centrix managing director Keith McLaughlin. Even worse, is the 49% rise in total mortgage debt for over 65s in the same period, from $16.9 billion to $25.2bn.
The most recent figure, from June this year, means that mortgage holders in the 65-plus age group have an average mortgage debt of $185,294.
While a third of homeowners in New Zealand are mortgage-free, the figures are a reminder that many Kiwis are likely to be heading into retirement saddled with sizeable mortgage debts.
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McLaughlin says the trend has been partly driven by the higher cost of homes, with the nationwide median sale price up 39% over the five-year period but also up 572% over the last 30 years (a 30-year term is still the most common in New Zealand).
McLaughlin also cites failed marriages as pushing some people to buy later in life than they might have. “If you go back 20-30 years, marriages were more robust than they are today.”
What’s more, low interest rates over the past five years have made people more comfortable to take on debt than they might have been in the past, says McLaughlin. Fewer over 65s had mortgages 20 years ago because the interest rates were higher, making them more hesitant to borrow.
Back in the 1980s no one had mortgages over the age of 65, says McLaughlin. “You couldn’t get one. If you had a mortgage, you would have paid it back [by 65] because debt wasn’t such an accepted practice in those days. In the 1980s you tended to buy a house and then paid it off over a fixed term mortgage. By the time you got to 65 it was paid off.”
Nor could people extract money from their mortgages for consumer spending, or house renovations as they can now, says McLaughlin. Today over 65s have borrowed for a wide variety of reasons. “They are borrowing [against homes] to finance businesses, second homes, investment properties, beach houses. Lifestyle has changed.”
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People are also working later, says McLaughlin. “I’m a classic example. I’m 65 and I’m not thinking of retiring because [work] is good fun. I’m healthy, and I feel closer to 40 than 65.”
Data from Infometrics shows that nearly half of New Zealanders aged 65-69 are still active in the labour market. The proportion of people over the age of 70 who are still active in the labour market has risen too, albeit at a slower pace. In 1987, only 5.8% of this age group was still active, 8.8 percentage points lower than today’s participation rate of 14.6%.
Infometrics chief forecaster Gareth Kiernan says it’s quite hard to know what proportion of the workforce is there voluntarily for social contact and intellectual stimulation, and how many people have bills and mortgages to pay and are compelled to work for longer.
“My sense was that the numbers we're seeing tends to lean more towards people just wanting to remain involved. By the time you reach 70 there is quite a definite drop off in [labour market] participation.”
Not everyone who has a mortgage over the age of 65 has had it for years. Equifax data shows 1.5% of mortgage enquiries in 2023 came from people aged 66+.
In addition to people still paying regular mortgages at retirement, many thousands have taken out reverse mortgages. These are people whose homes may have been paid off, but they need to borrow against the capital to release money to live on. Both Heartland and SBS banks offer reverse equity mortgages.
Financial adviser Maurice Mehlhopt works with older clients. He says that it’s not uncommon for clients to still have outstanding mortgages in their 60s and 70s, and find themselves in trouble paying them.
Infometrics chief forecaster Gareth Kiernan: “By the time you reach 70 there is quite a definite drop off in [labour market] participation.” Photo / John Stone
Over 65s with ordinary mortgages can get into difficulties. One client came to Mehlhopt after running into problems with the bank. He had an outstanding mortgage, which was on a 2.9% interest rate with two years to run.
“The client went to the bank and said, ‘Look, I'm really struggling’. The bank said ‘no, no, no, gosh, the last thing we want to do is push people out of their home. What we'll do is give you a [repayment] holiday. Let’s give it six months and see how you get on’. This all sounds lovely. But of course they went from 2.9% to the bank's penalty rate of 7%.”
Some older clients in this situation refinance the remaining mortgage or other debt onto a reverse mortgage, which frees them from repayments and the stress that comes with that.
“I'm working with a lady at the moment, who is 72. She has the remains of a mortgage of about $30,000. She wants to sell her house, but needs some money to put into the property to get it ready for sale.
“She wants to go into the sale confidently, so she can say to a real estate agent ‘I don't need to sell, I want to sell’,” says Mehlhopt. By taking a reverse mortgage, the client was able to clear her mortgage, pay for repairs, and be left with some spending money.
Mehlhopt says reverse mortgages can reduce stress for the over 65s who have a home, but little if anything in the way of retirement savings. “They say to me: ‘I didn’t realise how stressful it was living week to week just on the pension, and struggling, and hoping the fridge doesn’t blow up’.” A reverse mortgage gives them the ability to have coffee with friends and enjoy life. “It really reduces the stress level,” he says.
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