Third of mortgage holders don’t think they will pay off their mortgage by 65

4th September 2023

Nearly a third of mortgage holders (32%) do not believe they will pay off their mortgage by the time they are 65, according to a survey by retirement specialist LV=.

It has also being reported that HSBC has become the latest lender to increase its maximum mortgage term to 40 years, in response to rising home loan costs. While lengthening the duration of a home loan reduces monthly repayments, it also means paying more interest over time. The average age of a first-time buyer is aged 32, which means many homeowners may not achieve mortgage-free status until their 70s. The research also found that one in ten retired individuals still had mortgage debt, with an average outstanding balance of £38,000. This could result in less discretionary income for pensioners during retirement.

Whilst 63% of those who retired with an outstanding mortgage debt had to pay the mortgage debt with their pension

In recent months, mortgage costs have soared due to rising rates affecting people in different stages of life. Those in retirement would likely benefit the most from being mortgage-free if inflation continues to rise, due to living on a fixed income.

LV= says as equity release has become mainstream, consumers are much more considered about how they could use Equity Release products to better suit their needs and lifestyle in later life. Unlike traditional mortgages, borrowers can choose to manage the interest on their equity release loan through early repayments despite higher rates at outset. Equity release customers also benefit from security of tenure, meaning that the homeowner can stay in the property until they die or go into long-term care. LV= research shows that 28% of homeowners would consider a lifetime mortgage, 3% said that they already have a lifetime mortgage. Whilst 31% of those who would consider a lifetime mortgage said that they would be more likely to because of the current economic conditions. This increased to 45% for those with a household income of £100,000 or more

David Stevens, Director of Savings and Retirement at LV, said “The LV= Wealth and Wellbeing Research Programme highlights how the dream of a mortgage–free retirement could be over for millions of people. High inflation, combined with longer mortgage terms means that more people will be forced to continue paying mortgages during retirement. This could result in less discretionary income for pensioners to spend on the more enjoyable things they had in mind for their retirement.”

“Our latest quarterly survey shows that 300,000 mortgage holders have fallen behind on payments in the past three months. Many people are on fixed-term mortgages ending in the next 12 months. That means millions of people face even higher mortgage payments when they come to re-mortgage or switch to a variable rate.”

“Retirees are also faced with difficult choices. For example, they may turn to drawing down money from their pension at a higher rate that may be unsustainable for them in the long run and increase the risk of running out of money. One option is to use equity release to unlock the value from their home to potentially pay down mortgage debt.”

“Our research reveals that those considering equity release are increasingly pragmatic about the option of accessing equity from their home as a way to help them achieve a more confident later lifestyle. It is very encouraging to see how the flexibility offered by today’s modern equity release products is welcomed.”

“The role of advisers in supporting their clients through making these choices is incredibly valuable, especially with equity release, in helping customers decide with confidence what is right for them and addressing the worries they may have.”