One in six adults expects to be paying mortgage off in retirement
Around one in six people expect to still be paying a mortgage over the age of 65, six years over the average age to settle the typical loan.
A report by Hargreaves Lansdown, which surveyed 2,000 people in April, found a fifth of those aged over 55 with a mortgage expected to still be paying it off over the age of 70.
A further five per cent surveyed said they would never be able to pay off their loan. The proportion of those who do not know if they will be able to repay has increased over the past three years, going from 11 per cent in 2019, to 16 per cent in 2021.
It noted that the possible reasons for the lengthened timeline could be higher property prices increasing the amount of deposit required and consequently delaying first-time buyer age.
Hargreaves Lansdown added that buyers could be more likely to take on longer terms to improve the affordability as repayments are smaller and more spread out.
The report continued to say the increase in higher education had pushed back the working age and increased the amount of individual debt, which could further delay house purchases.
Divorce was also cited as a possible reason as it could mean borrowers take on a new mortgage later in life.
Borrowers who have taken out interest-only products, and do not have savings to repay the outstanding debt, may seek repayment mortgages later in life, the report explained.
Hargreaves Lansdown’s personal finance analyst, Sarah Coles, said: “This doesn’t have to be the end of the world. If you’ve saved for a generous pension, and your mortgage will be fairly modest by then, it may well be affordable. However, if your pension can’t cover it and you’re relying on being able to work later in life, you open yourself to all sorts of risks.”
She added: “If you expect to still be paying your mortgage in retirement, it’s worth thinking what you can do now to protect yourself further down the line.”
Risks of paying mortgage into old age
Hargreaves Lansdown said there were distinct risks of paying mortgage into retirement as employment and borrowing options tended to be more uncertain.
The report said during the first year of the pandemic, the employment rate for those aged 50 to 64 fell two per cent to 71 per cent and just over a quarter of those furloughed in February this year were over 50.
It added that using a pension to pay off a mortgage may not be affordable and calculations would have to be done in advance. It also noted that paying a mortgage into retirement could mean pension contributions cannot be increased.
The report said options for remortgaging over the age of 50 tended to shrink, with some lenders only considering specific circumstances over the age of 60 and not at all beyond the age of 70.
It also noted that joint mortgages may also be harder to repay if a partner is forced to give up work or passes away as the burden falls on one person.
Possible remedies to reduce the financial burden include increasing monthly repayments, working longer, leveraging savings and investments, using a pension tax free lump sum to pay it off, downsizing in retirement, switching to a retirement interest-only mortgage and releasing equity.