Many people expect to have mortgage payments after turning 65, according to Hargreaves Lansdown.
According to a recent survey conducted by Opinium for HL in May 2023, more than one in six people or 17 per cent expect to continue paying their mortgages beyond the age of 65.
The figures become even more concerning when considering that nearly one in ten respondents or 9 per cent anticipate being over 70 years old or never fully paying off their mortgages.
Among those aged 55 and over who still have mortgages, one in five respondents or 18 per cent expect to repay their loans after the age of 70, while 7 per cent believe they will never be able to clear their mortgage debt.
The survey highlights that the average age at which individuals expect to repay their mortgages has increased from 57 to 60 within a year.
Of those surveyed, 80 per cent who were retired owned their homes outright, demonstrating a significant achievement in achieving mortgage-free status. But 6 per cent of retirees still had mortgage debt, which suggests that some individuals have carried mortgage obligations into their retirement years.
The survey findings suggest that escalating mortgage rates are a significant contributing factor to the increasing number of individuals extending their mortgage repayment period later in life.
Hargreaves Lansdown head of personal finance Sarah Coles says: “More than one in six people will still be paying the mortgage after the age of 65, and recent hikes in mortgage rates could force more of them to extend the loan later into their 60s, with horrible implications for their finances.
“Higher mortgage rates are likely to mean even more people paying their mortgage later in life. It has pushed the average 2-year fixed rate deal to around 6.2 per cent, according to Moneyfacts, causing a remortgaging nightmare for hundreds of thousands of people. As a result, lenders have agreed with the government to make it easier to temporarily extend the term of the mortgage, without affordability checks. It is designed to make short-term mortgage tweaks easier, but there’s every chance that people taking advantage may end up with a more permanent change, to make monthly payments affordable.
“It’s not just higher mortgage rates causing the problem. The cost of property shoulders much of the blame. With the average cost of a home now at £286,000, building a deposit takes far longer – especially because we’re having to save while paying through the nose for everything from bills and rent to food. It means the average age of a first-time buyer has hit 30.
“The fact that first-time buyers are borrowing so many multiples of their income means repayments are stretched over a longer period too. The English Housing Survey in 2021/22 found that of those first-time buyers who had a mortgage, over half (56 per cent) had a repayment period of 30 years.
“And even those who buy relatively young, with a shorter mortgage, can run into all kinds of trouble along the way, which pushes their mortgage repayment back. Even if you snap up a property at the average age of 30, and take out a 25-year mortgage, it only takes the odd life hiccup to push payments into your 60s. If you end up dipping into your property equity, or face divorce, you can push your final repayment date back beyond retirement.
“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. 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.”
Hargreaves Lansdown head of retirement analysis Helen Morrissey says: “If you plan to keep working past retirement age to pay your mortgage, you need to appreciate that you may not be in control of when you stop work. The number of people who are too sick to work has hit a record high, and is far more common in older workers. If you need to keep working to cover the mortgage, you could end up with a serious shortfall.
“If you plan to pay your mortgage out of your pension, you need to do your calculations well in advance to be sure you can cover the cost. It’s not beyond the realms of possibility you can cover a small mortgage from your pension for the short term, but you need to work out what this will do to your outgoings and how this will eat into your retirement savings. If you are drawing from a pension, eating into the capital in the early days can have a huge impact further down the line.
“Even if you manage to pay the mortgage before retirement, if you are forced to pay for longer, you could miss a key window of funding your pension. Traditionally once children left home and the mortgage was paid off, you had an opportunity to dramatically increase pension contributions. If you’re still repaying your mortgage into retirement, this opportunity will pass.”
Coles says: “If you’re set to repay your mortgage in retirement, it’s worth considering your options. Rising prices and soaring interest rates will make overpaying your mortgage particularly difficult right now, but when wages catch up a bit, it’s worth considering. If you receive any lump sums, you could use some of it for this too.
“If you have significant savings or investments, you can weigh up whether it’s worth using them to pay off the loan. This may offer peace of mind, but it’s not always a good idea. During your retirement you will be spending down the savings and investments you’ve built up over a lifetime, so you may not want to wipe them out on day one. Likewise, some people will use their pension tax-free lump sum to pay the mortgage off, but this needs to be considered carefully. You may need the pot to generate an income you can live off, so dipping into it could leave you struggling throughout retirement.
“For many people, working later in life will form part of the solution, but they’ll have a Plan B that can kick in if this isn’t possible. This could include using equity release to free up a lump sum to repay your mortgage. However, it’s important to understand the full cost. In addition to the fees, the interest on the loan will roll up and need to be repaid after you die. Over a ten-year period, the amount payable on the loan can double.
“Alternatively, you can consider downsizing as soon as you retire in order to pay it off. This can solve the problem, but do the maths if you’re planning this approach, because you may not free up as much as you’re expecting. You also need to be prepared to move out of the family home, which can be easier in theory than in practice.”
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