Mortgages: Data shows you have to pay more in retirement

image Source, getty images

  • Author, Kevin Peachy
  • Role, cost of living reporter

Estimates show that hundreds of thousands of homeowners over the past three years have taken out mortgage loans that they will still pay off in retirement.

Mortgage terms beyond state pension age have seen an increase, particularly in new home loans given to people under 30.

Bank of England figures show how the share of new mortgages with later completion dates has increased.

Higher mortgage rates have led many people to choose extended repayment periods to control costs.

The figures emerged from a Freedom of Information (FOI) request made by former pensions minister Sir Steve Webb, who is now a partner at pensions consultancy LCP.

“The challenge of getting on the housing ladder is forcing large numbers of young homebuyers to gamble with their retirement prospects by taking out ultra-long mortgages,” he said.

He suggested that using limited retirement savings to repay a mortgage could put people at greater risk of poverty in old age.

careful thought

The FOI followed a Bank of England financial policy report which included mortgage data for the fourth quarter of 2023. Mr Webb had requested data relating to the fourth quarter of the last two years.

Bank of England data shows that in the last three months of 2021, almost 31% of new mortgage closing dates were over state pension age.

Two years later, about 42% of new mortgages had an end date in retirement, indicating an increase in the popularity of longer-term loans.

In the final quarters of all three years, nearly 300,000 new mortgages were in this category.

Homeowners' financial prospects can change significantly over the course of their working lives.

A longer-term mortgage can be replaced with a shorter-term mortgage as someone's income increases, or they find other ways to pay their mortgage.

However, the pressure on young homeowners is clear as the proportion of those over pension age owning a mortgage has increased sharply.

The number of homeowners under the age of 30 taking out such mortgages more than doubled over the two-year period, compared with 30% for those under the age of 40.

Meanwhile, older age groups saw a decline in such mortgage deals.

This comes during two years of turmoil in the mortgage market. Rates are now much higher than they were at the end of 2021.

Young homeowners are choosing longer mortgage terms to make repayments more manageable.

How long such a trend may last will largely depend on whether mortgage rates fall and stabilize.

On Thursday, the Bank of England stepped forward from a summer rate cut, keeping the base rate at 5.25% and hinting at further cuts.

The Bank's governor, Andrew Bailey, said he was “optimistic that things are moving in the right direction” regarding the UK economy, leading to speculation about a base rate cut.

Ways to make your mortgage more affordable

  • Pay more. If you still have some time on a low fixed-rate deal, you may be able to pay more now to save later.
  • Move toward an interest-only mortgage. This can keep your monthly payments affordable, even though you won't be paying off the debt accrued when you buy your home.
  • Extend the life of your mortgage. The typical mortgage term is 25 years, but 30 and even 40-year terms are now available.
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