A growing number of over-50s who find themselves out of work and ineligible for the state pension are turning to later life lending to bridge financial gaps, according to new analysis from Key Later Life Finance.

The equity release adviser has highlighted a troubling rise in economic inactivity among those aged 50 to 64, with official figures showing that nearly one in four men (23.2%) and almost one in three women (31.3%) in that age group are not in work. Of those, nearly half (44.9%) are unable to work due to long-term illness, disability or injury.

While the employment rate for 50 to 64-year-olds has risen slightly to 70.9%, it remains below the pre-pandemic peak of 72.5%. The average age of retirement is currently 65.7 for men and 64.5 for women, although regional disparities persist, with employment among older people in Wales falling to just 60.3%.

Faced with the challenge of supporting themselves through a period of unexpected unemployment and rising living costs, many over-50s are turning to the wealth stored in their homes. The age group collectively holds housing equity worth £2.183 trillion, according to industry data. Equity release products, particularly lifetime mortgages, are increasingly being used to unlock that wealth in a structured way.

Figures from the Equity Release Council show that demand is rising among younger borrowers within the later life lending market. Nearly half (48%) of new customers are aged 55 to 60, and over 73% are aged between 55 and 65.

Will Hale, chief executive of Key Advice, said later life lending is proving essential in helping those who are no longer able to work due to ill-health, but who still face several years before their state pension becomes accessible.

“Later life lending products are already playing a major role in helping with retirement planning by enabling fit and healthy over-50s to manage mortgage debt in a flexible and efficient way,” he said.

“The rising numbers of people who are unable to work through sickness, injury or disability in their 50s and early 60s need to look at a wide range of financial options, including housing equity, to bridge the gap until other sources of retirement income become available to them – for example the state pension.”

Recent product innovation in the sector has made lifetime mortgages more adaptable, allowing customers to pay some or all of the interest, with many loans featuring fixed or no early repayment charges. Some providers now offer lower interest rates to borrowers who make regular payments, helping to reduce the long-term cost of borrowing.

Customers also have the option to repay loans in full if capital becomes available – for instance, through an inheritance – or transition to a full roll-up mortgage with fixed interest for life and secure tenure, once any mandatory repayment periods have been met.

“However,” Hale cautioned, “everyone’s circumstances are different and it is important that these products, which do have some downside risks, are accompanied by specialist advice.”