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A fifth of people do not expect to retire mortgage-free

A fifth of people do not expect to retire mortgage-free
Samantha Partington
Written By:
Samantha Partington
Posted:
05/03/2024
Updated:
05/03/2024

A growing proportion of homeowners say keeping up with mortgage payments is preventing them from saving for their retirement.

A fifth of people believe they will still be paying their mortgage in retirement, while nearly a quarter say current repayments are preventing them from saving for the future, a study found.

A survey of 5,000 people conducted by industry body the Equity Release Council (ERC) and lender Canada Life found that 22% said current mortgage payments stopped them from saving towards retirement. This was up from 14% in 2021. 

Some 19% did not know if they would be mortgage-free by the time they retired. 

Nearly one in six (16%) said their mortgage debt was stopping them from retiring altogether, slightly higher than the 14% who shared the same concerns in 2021. A tenth said they could not reduce their hours at work because of their mortgage payments, a greater share than the 4% impacted in 2021. 

Meanwhile, more than 21% said mortgage payments were stopping them from affording a comfortable lifestyle, which was affecting their wellbeing.

Accessing property wealth 

The majority – 90% – of respondents said it was important to be mortgage-free in retirement. 

The study found that it was less important to younger homeowners to be mortgage-free by the time they retired.

Despite its importance, just two-thirds of all respondents believe their mortgage will be cleared by this point, and this figure fell to 60% among those aged 55 and over.

To support their lifestyles, homeowners suggested they would rely on property wealth and equity release mortgages. 

Some 31% said accessing property wealth later in life would improve their finances and retirement income, up from the 25% who believed the same in 2021. 

Just over a quarter said an equity release mortgage, also called a lifetime mortgage, would boost their income, which was higher than the 21% who had the same view in 2021. 

Juggling retirement savings and mortgage bills 

Jim Boyd, chief executive of the ERC, said higher interest rates pushing mortgage payments up was “making it difficult for homeowners to prioritise retirement savings alongside their mortgage and wider bills”. 

He added: “While this might be something they can just about manage in the short term, the real concern of this spike in mortgage costs is the strain it puts on people’s long-term financial resilience. It’s truly alarming that mortgage debt has become so uncomfortable that people are having to put off starting a family, ending a relationship, or changing career. Having to push back key milestones and life moments like this is not only disheartening, but could ultimately be detrimental to society as a whole.

“Rather than struggle against the tide, we need to recognise we are in a new era where the goal of becoming mortgage-free will, for some people, be less important than the practical need to access property wealth in later life.” 

Tom Evans, managing director of retirement at Canada Life, added: “Retirement feels like a distant dream for many, and having worked hard throughout life, it’s logical to hope or even expect to be mortgage-free when reaching this milestone. As the past few years have shown us, though, unexpected changes can happen, with plans getting turned on their head. As such, many of us will face the possibility of having to adjust our ways of living in retirement.

“Whilst this may feel unsettling, it’s important to remember that there are always options. Lifetime mortgages now offer greater flexibility to individual needs, and so more people may consider the prospect of using property wealth alongside other assets to fund retirement. Our customer data show that paying off an existing mortgage has been the top reason for releasing equity for the past six years, but this is just one of many drivers for customers releasing value from their homes. 

Related: Half of workers rethink retirement plans due to cost-of-living crisis