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Japan's seniors are trapped
in mortgages they can't pay off

A growing number of elderly people are falling into poverty, unable to pay off their mortgages with their pensions and savings. Over the past 20 years, the age at which home loans are expected to be paid off has risen by five years to 73, according to an investigation by Nikkei. That is because the age of new borrowers and the amount of money they take out is increasing. Even as Japan raises the retirement age to 70, the elderly will still be forced to live on their pensions while still in debt. Both lenders and borrowers need to consider the risk of retirement.

Full repayment at 73

“Looking back now, I didn’t plan things well,” said a 68-year-old resident of Sagamihara in Kanagawa Prefecture near Tokyo. He borrowed 40 million yen in 1993 to buy a home because it was the traditional thing to do. Not owning a home in old age leaves some feeling vulnerable. But now, facing his repayment plan, he regrets the choice.

He did not receive a retirement payout, and his pension is not enough to cover both his loan repayments and his daily expenses. He now works a part-time job, earning less than half of what he made previously. Every day grew more difficult, and he's now looking to sell the house.

Putting of the risk of repayment to senium

Interest rates are negligible, meaning seniors’ repayment risks can be put off. However, the amount of money people borrow tends to grow as home prices rise. Many people are making repayment plans on the assumption that they will live for a long time.

Housing loan repayment balance

million yen

years old

FY 2000 to 2020, user average

To look into the state of Japan's mortgage loans, Nikkei examined user data for people who use "Flat 35," one of the Japan Housing Finance Agency's most popular products. An analysis of approximately 1.22 million users from fiscal 2000 to the first quarter of 2020 reveals that many are postponing the full repayment of their loans into retirement.
What emerges from the data is that the age at which loans can be fully paid off has increased significantly because of a combinaiton of three factors: increasing borrowing ages, increasing loan amounts and longer loan terms.

The curve showing the evolution of mortgage balances by age has shifted from the lower left to the upper right over the past 20 years. As the age at the time of borrowing increases, so does the amount borrowed, postponing the risk of repayment into old age.


Age at the time of borrowing, up to 40 from 37

The average age of mortgage holders at the time of borrowing was in the 37-38 range in the early 2000s. Then, as people got married later, among other factors, the average age of first-time homeowners has been in the 40s since FY 2013. As of July 2020, the average age is 40.4. The average age at the time of borrowing has risen by more than three years in the last 20 years.

Age at the time of borrowing
2003
37years old

2020
40years old

Borrowing increased to 31 million yen from 19 million yen

The average loan amount, which is the total loan amount divided by the number of loans, has increased significantly over the past 20 years, from 19 million to 31 million yen. This is largely due to the continued rise in house prices against a backdrop of ultra-low interest rates. Because of the light interest burden, borrowers tend to reduce their down payment to preserve cash and take out large loans.

Borrowing
2003
19million yen

2020
31million yen

Loan term extended to nearly 33 years from 30 years

The average repayment period at the time of the loan has also increased. The repayment period has hovered between 30 and 31 years, except for a brief period exceeding 32 years before the global financial crisis, when the real estate market was buoyant. Over the past few years, the average repayment period has lengthened again, with the longest ever at 32.7 years in fiscal 2020. The ratio of monthly repayments to monthly income has not changed significantly in recent years at around 22%, and the increase in borrowing has led to longer repayment periods.

If early repayments are not taken into account, a borrower will be 73.1 years old when he repays the loan in full. The age of full repayment will rise by more than five years over the last 20 years from 68.3 years old in FY 2000.

Age at the time of full repayment
2000
68years old

2020
73years old

Balance at age 60, increased to 13 million yen from 7 million yen

The problem with the increase in the age of full repayment is that the burden of repayment in old age will fall on people with declining incomes, and the loan balance at age 60 has risen from around 7 million yen to over 13 million yen over the past 20 years. If you don't plan for early repayment, you will only be putting off the risk to retirement.

Balance at age 60
2003
7million yen

2020
13million yen

Loans available if younger than 85

Broken down by age, more than 90% of 45- to 49-year-olds, who make up just under 20% of all borrowers, choose loans with terms of 30 years or longer. Many continue to repay their loans until they are nearly 80 years old. The agency's general rule is that borrowers must be younger than 80 at the expected time of full repayment, and older borrowers are only able to access loans with shorter terms.

90% of borrowers plan to repay loans until age 80

Mortgage loan term for ages 45-49

    %

    Source: Japan Housing Finance Agency

    Private financial institutions have also been moving to raise the age of full repayment. Sony Bank raised the age of full repayment for its loans to less than 85. The National Housing Industry Association has asked the Ministry of Land, Infrastructure and Transport to raise the repayment age to 85 for Flat 35 loans. Consumers have more options for buying homes, but the risk that they will still be repaying loans in their old age is also increasing.

    In some cases, borrowers pay off their loans sooner than planned. Japan's incredibly low interest rates mean that interest payments are small, so borrowers take out long-term loans with the idea of paying them off in advance. But more seniors are not getting the retirement benefits they were counting on, and they are forced to change their retirement plans to repay their loans.

    A severance package that can't be counted on

    To make ends meet, some elderly people are taking part-time jobs

    Raising the retirement age offers workers a chance to earn some income in their later years. Conversely, it is difficult to repay loans with a large drop in income. Workers' salaries often fall by half when they reach their retirement age, and benefits also decline. Graduates and post-graduates who worked for 20 or more years received an average of 17.88 million yen in retirement benefits in 2018, more than 1.5 million yen less than in 2013, according to a survey by the Ministry of Health, Labor and Welfare.
    Japan's extended retirement age is 70, which means that not only will retirees have to dig into their pensions and other savings but more and more seniors are taking part-time jobs to make ends meet if they haven't paid off their mortgages. According to internal data from the Housing Agency, 15% of the 65-69 age group who took advantage of flat 35 in 2018 were working part-time.

    Employment and working part-time will be needed to raise funds for repayment

    Occupation of borrowers aged 65-69

      %

      Source: Japan Housing Finance Agency
      The Tokyo office of the non-profit organization Mortgage Loan Problem Support Network, which has helped many elderly people who were struggling to pay off their loans.

      Flat 35 was introduced in the early 2000s. The average borrowing age at that time was just under 40, meaning many borrowers will reach retirement age in the next few years.

      According to a study by Mitsubishi Research Institute, households with more than 10 million yen in mortgage debt at age 60 are more likely to be on "default reserve," meaning they will have trouble making their payments, than households with less than 10 million yen in debt.

      "More and more people are taking advantage of low interest rates to take out loans without down payments that really stretch their financial limits," said Aiko Takahashi, president of the Mortgage Loan Problem Support Network, a non-profit organization that helps users stuck in repayment. She noted that there has been a noticeable increase in "paired loans" in which couples each take out a mortgage loan. "People say they are living for 100 years, but currently there are few people who are still working after age 70. I would urge them to plan to pay off their loans by age 70 at the latest,” she added.

      Change of residence during repayment makes life easier

      A longitudinal survey of the middle aged by the Health Ministry is a good reference for seeing how many older households are still carrying mortgages. Currently, just over 10% of households aged 63-72 have a mortgage. The proportion of older households with mortgages is likely to rise in the future, given the longer loan terms.

      Just over 10% of households over the age of 65 will still have a mortgage

      50-59 years old as of 2005

        %

        Average age
        2005 54.5
        2009 58.5
        2010 59.5
        2011 60.5
        2012 61.5
        2013 62.5
        2014 63.5
        2015 64.5
        2016 65.5
        2017 66.5
        2018 67.5
        Source: Ministry of Health, Labor and Welfare, "Longitudinal Survey of the Middle Aged"

        The typical mortgage term in Japan is 35 years, longer than in other countries. In the U.S., 30-year fixed loans make up about 90% of mortgages, according to housing finance giant Freddie Mac. In Europe, terms are usually between 25 and 30 years, although most people tend to have paid them off by retirement. Housing markets are also more liquid in other countries, and people tend to move more.

        In Japan, properties tend to lose much of their value over time, so it's not uncommon for homes to sell for less than they were bought for over the course of a buyer's life. It is often difficult for seniors to find places to rent, and their options are limited if they are struggling to pay off their loans. "Housing needs change with age," said Hisashi Ogaki, a professor at Aoyama Gakuin University. "It is necessary to create a system in which seniors can rent out their houses to pay off their loans while moving into cheaper rental properties." Subletting is not allowed for properties that have been mortgaged. A framework that allows for this would ease many people's burdens.

        "It should not be the responsibility of the borrower alone," Ogaki said, adding that there should also be detailed examinations of lenders. In particular, because the Japan Securities Depository Center (JSDC) buys Flat 35 loans, the financial institutions that act as intermediaries for the loans are unlikely to conduct thorough examinations that consider repayment in retirement. After examining the loan balance at retirement and the future value of the home, "we need financing that is more balanced," he said.