Mortgages: More payments in retirement, data suggests – BBC News

image source, Getty Images

  • Author, Kevin Peachey
  • Role, Living expenses of the reporter

Hundreds of thousands of homeowners are estimated to have taken out mortgages in the past three years that they will continue to pay until retirement.

There has been a sharp rise in mortgage loans over the state pension age, particularly in new housing loans for under-30s.

Bank of England figures show how the proportion of new mortgages with a later end date has increased.

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

However, because they will be paying off the mortgage for longer, they will pay more interest, so the overall cost is likely to be higher.

The figures emerged from a Freedom of Information (FoI) request made by Sir Steve Webb, a former pensions minister 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 pay off a mortgage could put older people at greater risk of poverty.

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

How long such a trend can last will also depend heavily on whether mortgage rates fall and level off.

The FoI request followed the Bank of England’s financial policy report, which included mortgage data for the fourth quarter of 2023. Mr Webb had requested corresponding data for the fourth quarter of the previous two years.

Bank of England figures show that in the last three months of 2021, around 31% of new mortgages had an end date after reaching state pension age.

Two years later, around 42% of new mortgages had this closing date during retirement, indicating an increase in the popularity of longer-term loans.

In the last quarters of all three years, there were almost 300,000 new mortgages in this category.

A significant amount can change in the financial outlook of homeowners during their working life.

A longer-term mortgage can be replaced by a short-term one when someone’s income increases or they find other ways to pay off the mortgage.

However, the pressure on young homeowners is evident with a sharp increase in the proportion of mortgages that are over the retirement age.

The number of home owners aged under 30 who took out such mortgages more than doubled over the two-year period, while those under 40 increased by 30%.

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

This happened during two years of upheavals on the mortgage market. Prices are much higher now than they were at the end of 2021.

On Thursday, while keeping the base rate at 5.25%, the Bank of England moved to cut rates over the summer and hinted at further cuts.

The Bank’s governor, Andrew Bailey, said he was “optimistic that things are moving in the right direction” for the UK economy, leading to speculation of a key rate cut.

Ways to make your mortgage cheaper

  • Make overpayments. If you still have some time to get a low fixed rate deal, you may be able to pay more to save later.
  • Switch to an interest-only mortgage. This can keep your monthly payments affordable even if you don’t pay off the debt incurred when you bought your home.
  • Extend the life of your mortgage. A typical mortgage term is 25 years, but 30 and even 40 year terms are now available.
Be in contact

Are the issues described in this story affecting you?