A MILLION folks have taken on mortgages they are going to be paying off at 66
- Many buyers are gambling with their retirement prospects, warns Steve Webb
- ‘Serious questions need to be asked of mortgage lenders,’ he says
- Worried about paying off a long mortgage? Find out what to do below
![if limited pension pots are used to clear a mortgage balance at retirement, people will be at greater risk of poverty in old age, says Steve Webb](https://i.dailymail.co.uk/1s/2024/05/13/10/84791199-13411639-image-m-11_1715592200883.jpg)
if limited pension pots are used to clear a mortgage balance at retirement, people will be at greater risk of poverty in old age, says Steve Webb
A million people have taken out home loans in the past three years which run beyond the current state pension age of 66, new data from the Bank of England reveals.
The ‘shocking’ figure shows the challenge of getting on the housing ladder is forcing large numbers of buyers to gamble with their retirement prospects by taking on ultra-long mortgages, warns former Pensions Minister Steve Webb.
He says there is a real risk may of these borrowers will have to raid their pension savings to keep paying or clear their mortgage at retirement, leaving them with less to live on in old age.
‘Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests,’ says Webb, who is This is Money’s pension columnist and a partner at LCP.
The fastest-growing group of people taking out mortgages stretching into retirement are those aged under 40, many of whom are first-time-buyers, according to Webb who obtained the official data under a freedom of information request.
The percentage of new mortgages in the fourth quarter of the past three years which ran past state pension age has jumped from 31 per cent in 2021 to 38 per cent in 2022 and 42 per cent in 2023.
> Worried about paying off a long mortgage? Find out what to do below
Between 2021 and 2023, the number of people aged under 30 who did this soared 139 per cent. There was a much larger cohort who did this aged 30 to 39, but the rise was much less steep at 29 per cent.
This is likely to be in response to the unaffordability of house purchases for many younger people, according to Webb.
‘Although a mortgage taken out in someone’s 30s, perhaps as a first time buyer, is highly unlikely to be someone’s last mortgage, the risk to retirement depends on what happens over the course of their working life and whether or not they are able to shorten the term,’ he said.
![Source: Mortgage data supplied by FCA to Bank of England](https://i.dailymail.co.uk/1s/2024/05/13/10/84790937-13411639-Source_Mortgage_data_supplied_by_FCA_to_Bank_of_England-a-28_1715593036080.jpg)
Source: Mortgage data supplied by FCA to Bank of England
Webb says his top concerns are:
– Those who have mortgage debt at retirement may use their modest auto enrolment pension pots to clear the debt, leaving little for retirement itself and jeopardising their later life standard of living;
– In the past, when people mostly paid off their mortgage before pension age, they could spend their final years in work boosting their pension pot. Even if mortgages only run to pension age (and not beyond), it deprives people of a period pre-retirement when they might have paid off their mortgage and be able to boost their pension;
– Mortgage lenders can have little certainty as to the future pension income of someone in their 30s today, so cannot know if borrowers will have enough income in retirement to service a mortgage debt;
– Growing numbers of people have dropped out of the labour market before reaching pension age which puts extra pressure on keeping up payments on a long-term outstanding mortgage.
![The number of people in each age group in 2023 Q4 taking out mortgages which run past pension age and how that number has increased over the previous two years. Source: Mortgage data supplied by FCA to Bank of England](https://i.dailymail.co.uk/1s/2024/05/13/10/84790933-13411639-The_number_of_people_in_each_age_group_in_2023_Q4_taking_out_mor-a-30_1715593050459.jpg)
The number of people in each age group in 2023 Q4 taking out mortgages which run past pension age and how that number has increased over the previous two years. Source: Mortgage data supplied by FCA to Bank of England
‘The huge number of mortgages which run past state pension age is shocking,’ said Webb.
‘We already know that millions of people are not saving enough for their retirement and if some of that limited retirement saving has to be used to clear a mortgage balance at retirement they will be at even greater risk of poverty in old age.’
Webb tabled an FOI request following separate information from the Bank of England in March which showed around two in five new mortgages to people in their 30s ran past pension age in the fourth quarter of 2024.
That is up from 23 per cent in 2021, he discovered after delving further into the issue, and obtaining mortgage data supplied by the Financial Conduct Authority to the Bank of England.
What to do if you’re worried your mortgage will run into retirement
If you are not expecting to be able to pay off your mortgage by retirement, you have several options.
Continue paying – if you can afford it
It is still possible to continue paying your mortgage past state pension age retirement if your means allow, for example if you are still working.
Mortgage lenders used to insist that mortgage debt was repaid by a borrower’s 65th birthday, but more have now lifted their maximum age restriction to 85.
This means it is possible for borrowers who can afford it to remortgage, and keep paying their loan off as usual.
Overpay while you are still working
Even if you may not be able to clear the entire mortgage before you retire, overpaying while you are still earning will reduce the debt and help you to pay it off quicker.
Most lenders allow borrowers to overpay a certain amount each year, often 10 per cent of the remaining balance, without incurring fees.
Downsize and pay off the loan
If you are open to the idea of moving home, purchasing a smaller or less expensive property outright could enable you to use the equity you have built up in your existing home to pay off what you owe and become debt-free.
Consider a retirement interest-only mortgage
Over-55s can apply for a retirement interest-only mortgage or Rio, though the maximum borrowing is usually between 50 and 70 per cent of the value of their home.
You pay only the interest, which makes the mortgage more affordable for borrowers in retirement. The debt does not have to be repaid until the last homeowner dies or moves into long-term care.
It can be repaid sooner, penalty free, if the mortgage deal has expired. Some lenders offer overpayment features.
Consider equity release
Equity release loans, also known as lifetime mortgages, can be used to repay any outstanding mortgage debt, pay for home improvements or to help loved ones onto the property ladder, for example.
The loan does not have to be repaid until the last borrower dies or moves into long-term care, but interest rolls up over time and the interest rates are higher than a traditional mortgage.
It will also affect the amount of inheritance you are able to leave behind.
> Read our guide to the ten steps you need to consider before using equity release.
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