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More than a million mortgages have been issued in the past three years and some buyers are still expected to repay until retirement age.
The latest data shows that two in five new mortgages have terms that allow homeowners to continue making payments into retirement.
Ultra-long or extended mortgages have become more popular in an era of higher interest rates as people look to spread the costs.
But that will end up making the loan more expensive, and experts say that raises serious questions about financial planning for retirement.
At the end of 2021, around three in ten mortgages were repaid by retirement age, according to Bank of England figures obtained by pensions consultancy LCP.
This proportion increased as interest rates increased. Despite interest rates falling from their peak, LCP said the trend appears to have continued.
“There is growing evidence that taking out a mortgage beyond retirement age is an entrenched feature of the mortgage market rather than a temporary blip,” Steve Webb, former pensions minister, said today. now associated with the LCP.
“This has profound implications for retirement planning, as it likely means savers could end up using already insufficient pension funds to pay off a mortgage balance.”
The temptation for young owners is obvious. A longer mortgage term would reduce monthly repayments.
But with the average age of first-time buyers rising – it now stands at almost 34 – the question of how people will be able to afford their mortgage repayments when they hope to retire is becoming increasingly important.
UK Finance, the trade body for banks and lenders, said only 3% of mortgage holders are currently repaying their loans after the age of 65.
Although many young homeowners have chosen longer mortgage terms to make their repayments easier, they may opt for shorter terms in the future if their salaries improve or if they move.
This is why UK Finance expects that only a small fraction of mortgages currently taken out will ultimately be spent on borrowers' retirement years.
However, it also raises the possibility that some people may be forced to work longer until their mortgage is paid off, or they may choose to downsize.
Lenders set limits
Lenders are relatively flexible when it comes to allowing people to take out these longer-term mortgages, but there are constraints, according to David Hollingworth, of mortgage broker L&C.
“There will often still be maximum age limits at the end of the mortgage term and lenders will need to ensure that borrowing will be affordable,” he said.
“This will require borrowers to demonstrate that their post-retirement income is adequate.”
Affordability checks became stricter after the financial crisis almost 20 years ago, with lenders needing evidence that mortgage applicants were able to cope with rising interest rates.
The reality for many people is that getting a mortgage of any type remains unaffordable.
Data released earlier in the week shows the dynamics of renting and homeownership, and their effects on financial hardship and life satisfaction.
“The proportion of people renting in the private sector doubled over the 2000s, and although it has stabilized at around a fifth of households, or a third in London, we are seeing people renting later in the life,” said Sarah Coles, of investment platform Hargreaves. Lansdown.
“Even when people reach their late 50s or early 60s, 11% of them are still living in private rentals.”
