Image source, Getty Images
- Author, Kevin Peachey
- Role, Corresponding cost of living
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Hundreds of thousands of homeowners took out mortgages over the past three years and will have to pay them off until they retire, according to estimates.
An increase in mortgage conditions beyond the legal retirement age has been observed, particularly in new home loans granted to under-30s.
Figures from the Bank of England show how the share of new mortgages with a later maturity has increased.
Rising mortgage rates have led many people to choose an extended repayment period to control costs.
The figures come from a Freedom of Information (FoI) request made by Sir Steve Webb, a former pensions minister who is now a partner at pensions consultancy LCP.
“The challenge of accessing housing is forcing large numbers of young buyers to gamble on their retirement prospects by taking out very long-term mortgages,” he said.
He suggested that using limited retirement savings to pay off a mortgage could put people at greater risk of poverty in old age.
Mindful thoughts
The FoI followed a financial policy report from the Bank of England which included mortgage data for the fourth quarter of 2023. Mr Webb requested the corresponding data for the fourth quarter of the previous two years.
Bank of England data shows that in the last three months of 2021, around 31% of new mortgages had an expiry date beyond the state pension age.
Two years later, around 42% of new mortgages had this maturity date at the time of retirement, suggesting a growing popularity of longer-term loans.
In the last quarters of the three years, almost 300,000 new mortgages fell into this category.
Owners’ financial outlooks can change significantly over the course of their working lives.
A longer-term mortgage may be replaced by a shorter-term mortgage as a person’s income increases or they find other ways to pay off their mortgage.
However, the pressure on young homeowners is evident with a sharp increase in the proportion of mortgages over retirement age.
The number of homeowners under the age of 30 with such mortgages more than doubled over that two-year period, while for those under the age of 40 the number increased by 30%.
At the same time, older age groups have seen a decline in these mortgage transactions.
This happened during two years of upheaval in the mortgage market. Rates are much higher today than they were at the end of 2021.
Younger homeowners have chosen longer mortgage terms to make repayments more manageable.
The duration of such a trend will largely depend on whether mortgage rates decline and stabilize.
On Thursday, while keeping its key rate at 5.25%, the Bank of England moved closer to cutting rates over the summer and hinted at further cuts.
Bank governor Andrew Bailey said he was “optimistic that things are moving in the right direction” when it comes to the UK economy, leading to speculation about a base rate cut .
Ways to Make Your Mortgage More Affordable
- Make overpayments. If you still have time left with a low fixed rate deal, you may be able to pay more now to save later.
- Switch to an interest-only mortgage. This can keep your monthly payments affordable, even if you won’t pay off the debt you accumulated when you purchased your home.
- Extend the term of your mortgage. The typical term for a mortgage is 25 years, but terms of 30 and even 40 years are now available.
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News Source : www.bbc.com
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