4-in-10 new mortgages run past retirement age

How changing lending patterns could affect retirement planning

Written in line with our editorial policy.

Recent data highlights a growing trend in the UK mortgage market: an increasing number of mortgages now extend beyond the borrower’s State Pension age. 

According to figures obtained by pensions expert Steve Webb, 42% of all new mortgages and remortgages taken out by the end of 2023 were set to run past retirement age. This is a significant jump from 31% just two years earlier. 

While this shift reflects changing borrowing and lending patterns, it also raises important questions about how individuals plan to manage their finances in later life. In this article, we explore the impact of arranging a mortgage that runs past retirement age, and options for those currently making repayments as you approach or begin your retirement.

We’ll be discussing:

• Why are longer mortgage terms becoming more common?
• Potential challenges for borrowers
• Exploring later life financial solutions
• Speak to someone who can help

Why are longer mortgage terms becoming more common?

For many new and remortgage customers, affordability is the main driver behind longer terms. With property prices high and interest rates recently elevated, borrowers are opting for extended repayment periods that run past State Pension age to secure lower monthly payments.

You might assume it is people in their 20s and 30s doing this, but surprisingly, this trend isn’t confined to younger generations. 

Data shows that a significant portion of mortgages running past State Pension age – more than a quarter – are being taken out by individuals aged 50 and above. As well as taking out a new mortgage, some of these borrowers may be remortgaging, perhaps to release equity or fund home improvements.

Potential challenges for borrowers

While longer mortgage terms may seem like a practical solution for many, they do come with risks – particularly for people closer to retirement. Homeowners traditionally aim to pay off their mortgage before retiring. The rise of mortgages running into retirement changes can have implications on retirement income and lifestyles.

For some, carrying a mortgage into retirement could strain already limited finances. Steve Webb highlights a specific concern: “if people were to reach pension age with a modest defined contribution pension pot and an outstanding mortgage balance, they might use one to pay off the other, leaving them with a very low income in retirement.” 

While clearing your mortgage early with pension savings may resolve the immediate issue, you could end up with insufficient funds to achieve the lifestyle you hoped for in retirement.

Additionally, unforeseen circumstances such as ill health or redundancy could further complicate matters for those relying on income to service mortgage payments in their later working years.

Exploring later life financial solutions

If you’re among the growing number of homeowners facing mortgage repayments overlapping your retirement, there are several options to consider:

Continue mortgage payments. For some, maintaining mortgage payments during retirement is manageable. If you have enough pension income to cover the payments, or you’re comfortable continuing in your career past pension age, you may find this approach perfectly feasible.

Overpay before retirement. If possible, overpaying your mortgage while you’re still working can reduce the term and the balance owed, helping you become mortgage-free sooner.

Use pension tax-free cash. If you have a defined contribution pension, you can withdraw up to 25% of your pot as tax-free cash. This could help clear your mortgage, but it’s vital to weigh the impact on your retirement income before proceeding.

Downsize. Selling your home and purchasing a smaller, more affordable property can free up equity and eliminate mortgage debt.

Equity release. For homeowners aged 55 and over, equity release offers a way to unlock property wealth to repay an existing mortgage. Lifetime mortgages, the most common form of equity release, can be arranged without having to make any monthly repayments. Instead, the loan and interest are repaid when you pass away or move into long-term care. If you wish, there are also voluntary interest-only options that help you to reduce or prevent interest from building up. 

Retirement interest-only mortgages (RIOs). These mortgages allow you to make interest-only payments on your loan for the rest of your life, with the loan itself repaid when you sell the property or pass away. As these payments are mandatory, you must be able to afford your payments for the whole of your retirement.

Speak to someone who can help

If you’re 55+ and concerned about managing your mortgage into retirement, why not speak to one of our selected equity release specialists? They can help you explore options to reshape your finances.

Find out what’s possible for you: get a free quote or talk to one of our friendly consultants by calling 0808 178 3055 or request a call back.

Source

4 in 10 new mortgages now run beyond retirement age: Steve Webb: Should we be concerned about surge in mortgages running into retirement? Money Marketing. Accessed 19 December 2024.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn