Increasing numbers of people are borrowing mortgages over the age of 55 leading to concerns the dream of retirement may be under threat for many.
A report from the body representing banks in the UK found later life mortgage lending is increasing in popularity driven in part by the ageing population but also because of steadily rising mortgage terms.
According to UK Finance, the percentage of new mortgage lending to homeowners with a term ending past the main borrower’s 65th birthday makes up more than 50% of all homeowner loans.
It’s the first time the percentage has reached this level since records began. UK Finance said this demonstrated later life mortgage lending would be set to become more significant in future
Charles Roe, director of mortgages at UK Finance said: “There’s been growing demand for mortgages from those aged over 55 and this is set to continue as more people live and work for longer.”
He added: “Later life lending both now and in the future will be imperative as existing homeowners look to later life products for accessing equity as they get older.
Meanwhile the Equity Release Council, which regulates the later life lending market, said attitudes towards this kind of lending have now changed and homeowners were becoming increasingly comfortable borrowing into retirement.
Pension concerns
But there were also concerns that some borrowers who were continuing to borrow into retirement might sacrifice some of their well-earned pension pot to do so.
Becky O’Connor, head of pensions and savings, interactive investor, the DIY pension platform, said: “The trend of mortgages that last into retirement means people need to invest even more into their pensions if they still want to be able to give up work and continue to meet housing costs.
“The level of state pension, as well as estimates for what people need in retirement to meet certain living standards, are usually based on the assumption that people have paid off their mortgage.
“So there is a risk that if someone does want to give up work but still has a mortgage to pay, they won’t have enough in their pension.”
She added: “The risk is that when you reach your sixties, you may be unable to work to earn enough to meet your mortgage payments.
“It’s a risk that’s hard to appreciate when you are 40 and taking out a 30-year mortgage. But it’s wise to plan as though you will still retire, rather than assume that you will be able to continue to work.
“Based on a fixed monthly mortgage payment of £700, someone with a mortgage term that ends at 70 rather than 65, who retires at 67, would need an additional £25,200 in their pension pot on retirement to continue to fund their mortgage.”
Jim Boyd, chief executive of the Equity Release Council added: “Property wealth can play an important part in a holistic approach to funding retirement and, as an industry, we must work together to ensure consumers get the information they need to weigh up increasingly complex financial decisions to do this.”
