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New data from the Bank of England shows that more than 1 million mortgages have been issued in the past three years with repayment terms that extend into borrowers’ retirement. That equates to 40% of recently issued loans. Ultra-long-term mortgages have become popular during a period of higher interest rates when people wanted to spread the costs over a longer period. However, such loans become more expensive and raise concerns over financial planning for retirement. At the end of 2021, about 30% of mortgages were taken for repayments until after pension age. This figure rose as interest rates increased and it appears to have continued.
The danger is that people will be using their inadequate pension funds to settle the mortgage, according to Steve Webb, a former pensions minister who is now a LCP partner. Longer mortgage terms may mean that it becomes increasingly difficult for people to afford mortgage payments when they retire. The average age of first-time buyers has risen to nearly 34 years, meaning that the question of how these people will be able to finance their mortgages in retirement is becoming increasingly important.
UK Finance’s banking and lending trade association believes that only 3% of mortgage holders currently pay off mortgages after they reach 65. Many young homeowners opted for a longer-term mortgage to make repayments more affordable, but they may move to shorter loans in the future if their salaries increase or if they move house. UK Finance anticipates that only a small percentage of the loans taken out now will go into borrowers’ retirement years. The prospect that some mortgage borrowers will have to work longer or downsize becomes a reality as people carry their mortgage repayments into old age.
David Hollingworth from mortgage broker L&C suggested that lenders remained flexible in approving people for longer-term mortgages. Yet, because of the affordability checks introduced after the financial crisis of 2000s, lenders will require proof from mortgage applicants to show that their post-retirement income will be enough to cover the costs. Nevertheless, data shows that many people find it hard to afford any kind of mortgage and are turning to renting in their later years.%
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