Half of consumers will still be paying mortgages off after 65
More than half of new mortgage borrowers do not expect to pay off their loans before they turn 65, according to a recent study.
Research published by UK Finance said longer mortgage terms coupled with the ageing population was driving a trend towards borrowing later in life. Some 52% of new homeowner mortgage lending in 2021 has been for terms that will end beyond the main borrower’s 65th birthday, it found. It is the first time the proportion has exceeded 50%, the group said, suggesting that later-life mortgage lending is set to become increasingly significant in coming years. In 2014 about a third of new homeowner mortgage lending went beyond the age of 65.
Mortgage lending to older borrowers has increased in popularity since 2014, returning to prepandemic levels in 2021. This is driven in part by increases in house purchase due to the stamp duty holiday, but also by stability in lending across different products. Older borrowers have continued to access a wide range of products as lenders have largely overcome the logistical and affordability challenges presented as a result of the Covid-19 pandemic relatively quickly.
Over the past five years, mortgage lending to over 55’s has continued to grow, even where gross lending in the wider mortgage market has remained subdued; in part due to loans to older borrowers having strong affordability.
Within the wider later life lending market, lifetime mortgages (also known as equity release products) have continued to grow in popularity over the past seven years as older homeowners look to access the equity in their homes. There has been a recent modest reduction in lifetime mortgages, due in part to the Covid-19 pandemic, however this reduction is expected to be temporary as pandemic restrictions are lifted.
Charles Roe, Director of Mortgages at UK Finance said “There’s been growing demand for mortgages from those aged over 55 and this is set to continue as more people live and work for longer.”
“For the first time since records began more than half of all new mortgages are due to end after the homeowner’s 65th birthday, and lending to over 55s has grown even where mortgage lending in the wider market has remained subdued.”
“Later life lending both now and in the future will be imperative as existing homeowners look to later life products for accessing equity as they get older.”
Jim Boyd, Chief Executive of the Equity Release Council said “UK Finance’s findings underscore the integral role that later life lending plays in consumers’ long-term security. Attitudes towards home finance in later life have changed, and homeowners are increasingly comfortable with mortgage borrowing into retirement and open to the benefits of realising some of their property wealth as they age.”
“Property wealth can play an important part in a holistic approach to funding retirement and, as an industry, we must work together to ensure consumers get the information they need to weigh up increasingly complex financial decisions to do this.”
Becky O’Connor, Head of Pensions and Savings, interactive investor , said: “Not only is the dream of retirement under threat but also the dream of mortgage freedom. The two go hand in hand – having enough pension income to retire well is usually dependent on having paid off the mortgage, leaving your pension pot free to cover other living costs when you give up work.”
“The trend of mortgages that last into retirement means people need to invest even more into their pensions if they still want to be able to give up work and continue to meet housing costs.
“The level of state pension, as well as estimates for what people need in retirement to meet certain living standards, are usually based on the assumption that people have paid off their mortgage. So there is a risk that if someone does want to give up work but still has a mortgage to pay, they won’t have enough in their pension.”
“The UK Finance research illustrates how rising house prices feed into the pressure to continue to work into old age. Longer-term mortgages improve affordability today, but defer the pain of repayment until tomorrow, when many may feel less able to work to meet the costs.”
“The risk is that when you reach your sixties, you may be unable to work to earn enough to meet your mortgage payments. It’s a risk thatt’s hard to appreciate when you are 40 and taking out a 30-year mortgage. But it’s wise to plan as though you will still retire, rather than assume that you will be able to continue to work.”
“Based on a fixed monthly mortgage payment of £700, someone with a mortgage term that ends at 70 rather than 65, who retires at 67, would need an additional £25,200 in their pension pot on retirement to continue to fund their mortgage.”