More than a million mortgages have been issued in the past three years which home-buyers are set to still be repaying into pension age.
Two-in-five new mortgages issued in the past three years will extend beyond state pension age, according to analysis of Bank of England figures by pension consultancy LCP.
The shift towards ultra-long mortgages has become increasingly common during the recent period of higher interest rates, as borrowers attempt to make monthly payments more manageable by spreading costs over longer terms.
These extended mortgages are now becoming an “entrenched feature” of the UK housing market rather than a temporary phenomenon, raising serious concerns about retirement planning for hundreds of thousands of Britons.
More than 500,000 British pensioners are still paying off their mortgages, as new data reveals an alarming trend of homeowners carrying housing debt into retirement.
The scale of retirement mortgage debt is significant, with current retirees owing an average of £63,644 on their home loans.
Data from UK Finance shows 32,990 new home loans were advanced to borrowers over 55 in the second quarter of 2024, marking an 8.34 per cent annual increase.
Some 32,990 new home loans were advanced to borrowers over 55 in the second quarter of 2024
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The financial burden is substantial, with retirees spending an average of £602 monthly on debt repayments.
This equates to £7,226 per year, representing approximately a quarter of the average annual household income for retired over-fifties.
The situation is part of a broader debt challenge facing pensioners, with around 3.3 million retirees having some form of debt, averaging £17,000 per person.
Steve Webb, former pensions minister now a partner at LCP, said: “There is increasing evidence that taking out a mortgage which runs past pension age is an entrenched feature of the mortgage market rather than a temporary blip.
“This has profound implications for retirement planning, as it is likely to mean that savers may end up using up already inadequate pension pots to clear a mortgage balance.”
This trend began accelerating at the end of 2021, when about three-in-ten mortgages extended into pension age, according to Bank of England figures obtained by LCP. Despite interest rates falling from their peak, the pattern shows no signs of reversing.
Jonathan Bone, Head of Mortgages at Better.co.uk, highlighted several advantages to longer-term mortgages despite the retirement risks.
Lower monthly payments make homeownership more accessible, particularly in high-cost areas or for first-time buyers.
The extended repayment period can increase borrowing potential without straining monthly budgets, as lenders calculate affordability based on monthly payments.
Most lenders allow overpayments up to certain limits without penalties, offering flexibility to reduce the mortgage more quickly when finances allow.
In areas with rising property values, longer-term mortgages can help buyers secure properties before being priced out of the market, while keeping monthly costs manageable. However, longer-term mortgages come with significant risks, particularly for those nearing retirement age.
The most substantial drawback is higher overall interest costs, as borrowers end up paying significantly more over the extended term.
Those with 35 or 40-year terms must demonstrate to lenders they will have sufficient pension funds or other income to continue payments after retirement.
Remortgaging options become limited as it takes longer to build equity, with most early payments going towards interest rather than the principal.
The slow reduction in mortgage balance can leave borrowers stuck with initial mortgage terms, unable to take advantage of better rates or more favourable conditions. Equity in the property also grows more slowly, which can limit options for selling or accessing property funds in the future.
For those struggling with mortgage debt in retirement, equity release could be considered as an option for homeowners over 55. This allows retirees to draw on their home’s value by taking a loan repayable upon death, potentially helping to clear existing debts.
However, SunLife’s chief executive Mark Screeton warns this should be approached with caution, as interest compounds over time and can become substantial.
He said: “Of course, equity release isn’t right for everyone, so it’s best to speak to a financial adviser to find out more about the options available to you and your specific circumstances.”
Alternative solutions include downsizing, which could help preserve inheritance for loved ones while clearing mortgage debt.