More folks face repaying loans in retirement | EUROtoday

More than 1,000,000 mortgages have been issued previously three years which ome-buyers are set to nonetheless be repaying into pension age.

The newest knowledge exhibits that two in 5 new mortgages have phrases that see owners nonetheless making funds in retirement.

Ultra-long, or prolonged, mortgages have develop into extra in style throughout a time of upper rates of interest as folks intention to unfold the fee.

But this may in the end make the mortgage dearer, and specialists say it raises critical questions over monetary planning for retirement.

At the top of 2021, about three in 10 mortgages took repayments into pension age, based on Bank of England figures obtained by the pension consultancy LCP.

That proportion grew as rates of interest rose. Despite rates of interest having fallen from their peak, LCP stated the development appeared to have continued.

“There is growing proof that taking out a mortgage which runs previous pension age is an entrenched characteristic of the mortgage market relatively than a short lived blip,” said Steve Webb, a former pensions minister who is now a partner at LCP.

“This has profound implications for retirement planning, as it’s prone to imply that savers might find yourself utilizing already insufficient pension pots to clear a mortgage stability.”

The temptation for young homeowners is obvious. A longer mortgage term would reduce monthly repayments.

But with the average age of first-time buyers rising – it now stands at nearly 34 – the question of how people will be able to afford mortgage payments when they hope to retire becomes increasingly important.

UK Finance, the banking and lenders’ trade body, said only 3% of mortgage-holders were currently paying off a mortgage after the age of 65.

While many young homeowners have chosen longer mortgage terms to make repayments more manageable, they may opt for shorter terms in the future if their salaries improve or they move house.

That is why UK Finance expects only a small fraction of the mortgages taken out now to ultimately go into borrowers’ retirement years.

However, it does also raise the prospect of some people having to work longer until a mortgage is paid off, or they may choose to downsize.

Lenders are relatively flexible on allowing people to take out these longer-term mortgages, but there are constraints, according to David Hollingworth, from mortgage broker L&C.

“There will typically nonetheless be most age limits on the finish of the mortgage time period and lenders might want to ensure that the borrowing shall be inexpensive,” he stated.

“That would require debtors to indicate that their post-retirement revenue is ample.”

Affordability checks became stricter after the financial crisis of nearly 20 years ago, with lenders needing proof that mortgage applicants could cope with rising interest rates.

The reality for many people is that getting any kind of mortgage remains unaffordable.

Data published earlier in the week shows the dynamics of renting and owning, and their effect on financial strains and life satisfaction.

“The proportion of individuals renting privately doubled in the course of the 2000s, and whereas it has levelled off at round a fifth of households, or a 3rd in London, we’re seeing folks renting later in life,” said Sarah Coles, from investment platform Hargreaves Lansdown.

“Even when folks attain their late 50s and early 60s, 11% are nonetheless in personal leases.”