A recent survey has found that four out of ten first time property buyers who took out a mortgage in 2017 will still be making repayments after retirement. Since 2012, the number of homeowners unable to pay off their mortgage before their retirement has doubled, with an expected 40% of people still having to make mortgage repayments from retirement income. Financial regulators warn that this could have a real impact on the aging population and their pensions.
The Financial Conduct Authority (FCA) says that over a third of all mortgages have a period of repayment of over 30 years, leaving many households unable to save for retirement. Higher house prices in London and the South East make it a particular problem in these areas.
The rising cost of living, limited earnings and household debts, have meant many potential homeowners delaying that first step onto the property ladder. This delay has resulted in a rise in the average age at which people take out their first mortgage. Postponing the purchase of a first home can suit young families, as waiting until the children are a bit older can give parents the opportunity to earn a higher income, resulting in easier to manage mortgage repayments or even a bigger mortgage.
Many first-time buyers are opting for a longer mortgage term that continues past the age of 65 because it is their only viable option to access the property ladder.
The Financial Conduct Authority says that the number of 16-44 year olds who own a property in the UK has reduced greatly since the early 1980s. However, it is not just new home buyers that are committing to mortgage terms of 30 year or longer, as one in five people moving house in 2017 opted for them, too. Mortgage terms have historically been limited to 25 years but in some cases can now be up to 40 years.
Of course, the longer the mortgage term the more interest you will pay and the longer you will have to wait until your home is entirely yours. Long term mortgages are worth considering as long as you take into account the cumulative interest charges and the impact paying a mortgage might have on you later in life.
So, what can be done?
Many people now find that it is cheaper to buy a home than it is to rent, with the added security of knowing that it will be yours one day (albeit in retirement) and you are not going to be asked to leave at some point. Plus, you could find yourself having more disposable income to pay into a pension pot.
Some homeowners who find themselves with longer mortgages could think about making overpayments if they have some extra cash flow. If they have a significant change in circumstance, such as a higher paid job or an inheritance, it may be possible to remortgage on a shorter term agreement.
Another option if you’re still paying for a mortgage in retirement is to downsize. This could give you some equity to play with or you might find somewhere similar but in a different location. Compromises are available if you have your heart set on climbing the property ladder, as long as you can cope with a longer timescale of repayments.
Before making a big investment in property, make sure an Independent Chartered Surveyor overlooks your prospective purchase to safeguard your investment or property assets.