Pension consultancy LCP has revealed that more than a million mortgages have been issued in the past three years that extend beyond the borrowers’ retirement age.
With high interest rates currently relatively high, many homebuyers or homeowners have had to take on loans with lengthy terms that will not be paid off by the time they reach pension age.
LCP found that in 2021, around 30% of mortgages lasted into the retirement years. This has since increased, particularly for new home loans taken out by those aged under 30. Two years later, some 42% of new mortgages were set to extend into retirement.
The banking and lenders’ trade body, UK Finance, says that currently, only 3% of borrowers are paying off a mortgage beyond the age of 65.
Sir Steve Webb, former pensions minister and partner at LCP said: “There is increasing evidence that taking out a mortgage which runs past pension age is an entrenched feature of the mortgage market rather than a temporary blip.
“This has profound implications for retirement planning, as it is likely to mean that savers may end up using already inadequate pension pots to clear a mortgage balance.”
Why take out an ultra-long mortgage?
Taking out an ultra-long mortgage may give buyers the chance of getting on the property ladder or buying a more expensive home than they might otherwise have been able to purchase. With interest rates still fairly high and many fixed-term mortgages coming to an end, a longer mortgage term can mean lower monthly payments, although overall, more will be paid back because of the extra years.
What does the future hold for those with ultra-long mortgages?
Borrowers with lengthy mortgages may be able to remortgage at some point, should their circumstances change. For example, they may earn more or be able to pay off some of the capital. Some borrowers could enter into a relationship and so share the costs. Others might reach a point where they are happy to downsize to a less expensive property.
Those whose mortgage is set to extend into retirement will need to make sure they are able to meet the repayments. This could require staying in work for longer or putting aside part of their pension.
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