Why you would face gloomy prospect of nonetheless paying off your mortgage in your 70s | UK | News | EUROtoday

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Row of houses

In the previous, most individuals may spend their remaining working years boosting their pension pots (Image: Getty)

Young dwelling patrons are being pressured to gamble with their retirement prospects by taking up ultra-long mortgages, based on a former pensions minister.

According to freedom of data (FOI) knowledge provided by the Bank of England, 42% of recent mortgages within the fourth quarter of 2023 – or 91,394 – had phrases going past the state pension age.

In the identical interval a yr earlier, 38% of recent mortgages had a time period ending past state pension age and in the identical interval in 2021, 31% of recent mortgages went past state pension age.

The figures had been obtained by Sir Steve Webb, a former Liberal Democrat pensions minister, who’s now a companion at LCP (Lane Clark & Peacock).

He mentioned that, primarily based on the figures obtained for the final three months of every yr, this means that during the last three years over a million new mortgages have been issued with finish dates past state pension age.

In the fourth quarter of 2023, folks aged 30 to 39 accounted for 30,943 new mortgages lasting past state pension age and folks aged 40 to 40 accounted for 32,305.

Under-30s made up 3,676 of those mortgages, folks aged 50 to 59 accounted for 18,854, 60 to 69-year-olds made up 4,955 and folks aged 70-plus made up 661.

Sir Steve highlighted considerations that some folks could not have the ability to afford to service a mortgage as soon as they retire and can raid their pension financial savings to clear their mortgage, leaving them with much less to dwell on in previous age.

The knowledge was primarily based on mortgage figures provided by the Financial Conduct Authority (FCA) to the Bank of England.

Although a mortgage taken out in somebody’s 30s, maybe as a first-time purchaser, is extremely unlikely to be somebody’s final mortgage, the chance to retirement relies on what occurs over the course of their working life and whether or not or not they can shorten the time period, Sir Steve mentioned.

He mentioned that, previously, when folks had largely paid off their mortgage earlier than pension age, they might spend their remaining years in work boosting their pension pot.

Even if mortgages solely run as much as pension age, it deprives folks of a interval working as much as retirement after they could possibly be mortgage-free and boosting their pension, he mentioned.

He additionally mentioned some folks could have dropped out of the labour market earlier than reaching their pension age.

As properly as making overpayments as and when that is doable to cut back the dimensions of a mortgage, some folks could determine to downsize to a smaller property, or flip to fairness launch to release money of their later years. There are issues to weigh up with fairness launch, similar to the cash that can be left behind for an inheritance.

Some debtors could also be hoping to obtain an inheritance themselves to assist them ultimately clear their mortgage.

Sir Steve Webb, companion at pension consultants LCP mentioned: “The huge number of mortgages which run past state pension age is shocking.

“The challenge of getting on the housing ladder is forcing large numbers of young home buyers to gamble with their retirement prospects by taking on ultra-long mortgages.

“We already know that millions of people are not saving enough for their retirement and if some of that limited retirement saving has to be used to clear a mortgage balance at retirement they will be at even greater risk of poverty in old age.

“Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests.”

In a speech to the Building Societies Association (BSA) final week, Emily Shepperd, FCA chief working officer mentioned: “Alongside longer terms we also see a greater proportion of mortgages projected to mature around state retirement age. The projected median age of a first-time buyer at maturity is now 65 years old, up from 56 in 2005.

“The proportion of mortgage customers over 67 is currently less than 2% of all loans. By 2040 this rises to 5%, and by 2050 it is almost 10%.

“Lending into retirement is moving from a niche to a norm.”

She mentioned that constructing societies recognise the necessity to think about completely different revenue and expenditure sources and desires, completely different life-style dangers, completely different capability to climate monetary shocks, including: “With borrowers projected to hold debt for longer, now is the time to ask yourself about the products and services you will provide to those borrowers to meet their needs responsibly and help them meet their financial goals – what will you need to do to support this growing population of customers and deliver good outcomes?

“Getting this right will of course benefit those individual customers, enabling them to meet their housing needs in later life, and move if that is their aim.

“It may also support first-time buyers with an increase in the supply of homes.”

Last autumn, the Bank of England’s Financial Policy Committee (FPC) famous that because the first quarter of 2021, the proportion of recent mortgage lending with a time period of 35 years or extra had elevated by eight share factors, to 12% by the second quarter of 2023.

The FPC additionally famous that whereas longer mortgage phrases and different forbearance measures may cut back pressures on debtors within the quick time period, they might improve debt burdens over the long term.

Potential dangers from the lengthening of debt burdens had been mitigated considerably by the FCA’s accountable lending guidelines, requiring lenders to take account of future modifications to revenue and expenditure, such because the borrower retiring, the place this was anticipated to occur in the course of the mortgage time period, the committee mentioned.

Mortgage charges have been creeping up in latest weeks, as lenders have adjusted expectations over a base charge minimize.

According to monetary data web site Moneyfacts, the common two-year fastened house owner mortgage charge on Friday was 5.94%, up from 5.93% on Thursday.

Property agency Savills not too long ago mentioned that throughout Britain, property values are anticipated to have elevated by simply over a fifth (21.6%) on common by the top of 2028.

It mentioned the common home value may improve by £61,500, from £285,000 in 2023 to £346,500 by 2028.

Karina Hutchins, UK Finance principal for mortgage coverage, mentioned: “The proportion of longer-term mortgages has been increasing in recent years as buyers to look for ways to stretch their affordability.

“When reviewing new mortgage applications, lenders will act within the responsible lending rules set by the Financial Conduct Authority and carefully consider whether the borrower will be able to afford their mortgage in the future.

“This will include whether the requested term would take the borrower beyond their anticipated retirement age.

“Where this is the case, it is common practice for lenders to request proof of pension. Those closer to retirement, usually within 10 years, may need to satisfy their lender that they can afford the mortgage based on their retirement income.

“Whilst longer mortgage terms can offer lower initial monthly repayments, the borrower will pay more in interest and have less disposable income to put into their pension if the mortgage runs for its full term.

“We would encourage customers to speak to an independent mortgage adviser to discuss the best options available for their specific circumstances.”