One in six will still be paying their mortgage after they hit 65

• Almost one in six people expect to be over the age of 65 by the time they repay their mortgage (15%).
• Among those who were aged 55 and over and still had a mortgage, one in five expected to repay over the age of 70 (19%), and 5% said they’d never be able to repay their mortgage.
• The number of people who don’t know when they’ll be able to pay off their mortgage has risen every year, from 9% in 2019 to 11% in 2020 and 16% in 2021.
• The average age we expect to repay the mortgage is 59.
• Of those who were already retired, 74% owned outright and 6% still had a mortgage.

Figures from a survey of a representative sample of 2,000 people conducted by Opinium for HL in April 2021.

Sarah Coles, personal finance analyst, Hargreaves Lansdown:

“One in six people will still be paying the mortgage in retirement. On the one hand, this is relatively good news, because mortgage holidays during the pandemic haven’t significantly shifted the timing of when we plan to have paid off the mortgage. On the other hand, this still means millions of people will face a major debt burden in older age.

The fact that 2.9 million people took mortgage holidays during the crisis hasn’t significantly moved the dial. This is likely to be because when payments restarted, mortgage companies tended to increase monthly payments instead of extending the mortgage as a default, and it seems borrowers have accepted these bigger bills rather than paying their mortgage for longer.

But although on average we plan to pay off the mortgage by the age of 59, a significant minority still expect to be paying a home loan in retirement. Right now, 6% of retired people are still facing monthly mortgage bills. If you’re still carrying the burden of your mortgage into retirement, there’s a risk it’ll drain the life out of your golden years.

Given the enormous cost of property, and the uncertainty in life, it’s not a huge surprise it’s taking longer to repay the debt. 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.

The number of people who have lost touch with when they might be able to repay the mortgage is also on the rise. This owes something to the fact that mortgage terms are increasing, so borrowers aren’t counting down the days. Increasing uncertainties in life also mean we don’t always know whether we’ll need to borrow more as we go along. Some of this will have been exacerbated by the pandemic. However, we need to keep on top of when the mortgage is due to be repaid, so we can build our broader financial plans around it.”

Why?

• Higher property prices mean we take longer to save a big enough deposit, and longer to earn enough to qualify for a mortgage. It’s one reason why the average age of a first-time buyer is 30.
• In order to boost affordability, buyers are taking on longer mortgages to spread repayments over a longer periods. We’ve seen the growth of the 35-year mortgage.
• More people in higher education means we’re starting work later, and already carrying debts, which pushes a purchase even further down the line.
• More complicated personal lives means more divorce. Of those marrying since the 1990s, a quarter were divorced by their 10^th anniversary. The average age to get divorced is 45, and starting again at this stage often means taking on a new mortgage.
• Those who had held interest only mortgages and have nothing in place to repay the outstanding debt, may have no alternative but to take out a new repayment mortgage later in life.
• This year we’ve seen unsecured borrowing drop back, and credit card debt has fallen 14%. However, we still owe over £1.7 trillion, which means many people still need to consolidate their debts by remortgaging.

The risks

• If you plan to keep working past retirement age to pay your mortgage, you may be forced to give up work sooner than planned.
• During the first year of the pandemic, the seasonally adjusted employment rate for those aged 50 to 64 years fell from 73% to 71%. In February 2021, 1.3 million people over 50 were furloughed (28% of the total).
• If you plan to pay your mortgage out of your pension, you may not be able to afford it. You need to do your calculations well in advance to be sure you can cover the cost.
• Your options for remortgaging are likely to shrink once you’re aged 50. Many lenders will only consider mortgages in specific circumstances beyond the age of 60, and not at all beyond the age of 70. Having fewer options usually means paying more for your mortgage.
• You’ll miss the window of funding your pension. Traditionally once the kids 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, you’ll miss the window.
• If you have a joint mortgage, as you get older, there’s more risk something will happen to your partner. They could be forced to give up work, or they could pass away, leaving you funding the mortgage on your own at the worst possible time.

What can you do?

Repay more now

If you can remortgage to a lower interest rate, more of your monthly payments go towards repaying the loan.

Keep working until you’ve paid it off

If you are well enough, have no caring responsibilities, and work is available, working longer until your mortgage is repaid is going to be a sensible option for many people.

Pay it off from savings and investments

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.

Use your pension tax free lump sum to pay it off

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.

Downsize 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.

Switch to a retirement interest only mortgage

These are interest only mortgages, where you make lower monthly payments to cover the interest, and then after your death (or you move house or into a care home) the property will be sold to repay the outstanding debt. You need to be sure you can afford the repayments, and talk to your family about your decision.

Release equity

You can free up a lump sum to repay your mortgage, but make sure you understand the cost. 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.

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay