Retirement May No Longer Mean Relaxation for Mortgage Holders Facing Long-Term Debt
In the past, retirement was seen as a time to unwind and enjoy after a lifetime of hard work. However, with rising mortgage rates and increasing life expectancies, many homeowners are finding themselves having to work past their pension age to pay off their mortgages.
According to a recent report by the Bank of England, almost half of the mortgages issued in the last quarter of 2023 were for 30 years or longer. Furthermore, two in five of these mortgages were issued to borrowers who would be past state pension age at the end of their mortgage term.
The rising interest rates, which pushed high street mortgage rates as high as 6.8%, have left many homeowners struggling to make their monthly payments. This has led to an increase in the number of mortgages being taken out for longer terms, with over 41,000 first-time buyers opting for mortgages of 30 years or more in the last quarter of 2023.
One homeowner from Hove, who wishes to remain anonymous, shared her experience with the Money blog. Despite having a healthy deposit, she still finds her mortgage to be a “big stretch” and will be paying it off until she is 75. She expressed concern over having to rely solely on her company and state pensions for income in her retirement, as they will not be enough to cover her mortgage and other expenses.
Another homeowner, Stephen Eblet, is facing a similar situation. His mortgage is set to run until he is 68, one year past his pension age. While he has enough in his private pension to pay it off, he worries about the impact it will have on his finances in retirement. As a 62-year-old self-employed plumber, he also has concerns about his physical ability to work until 67, which he believes is too high a retirement age for manual laborers.
However, there are options for those with long-term mortgages. Danielle Steele, 39, from Swindon, plans to downsize once her two daughters leave home in around a decade, which would shorten the term of her mortgage. Similarly, David Clarkson, 41, from Flintshire, opted for a mortgage that would take him and his wife to 75, with a fixed rate for three years. He hopes that interest rates will drop in the next few years, allowing them to pay it off in time.
According to Gerard Boon, managing director of online mortgage broker Boon Brokers, his staff have noticed an increase in clients reporting that they will have to work longer to pay off their mortgages. He advises clients to opt for a shorter term if possible, as they will end up paying more interest over the course of a longer-term deal. However, for many, this is not feasible, and they are forced to take out longer-term mortgages.
Lenders in the UK have age limits for mortgage lending, including a cap on the maximum age for taking out a mortgage and a maximum age for paying it off. While these limits vary between lenders, most will not allow a new mortgage to be taken out past the age of 80. Individual circumstances, such as income and credit history, also play a role in determining eligibility for a mortgage.