Many younger homeowners are displaying an unrealistic and misplaced optimism over the time it will take to pay off their mortgage, a broker has warned.
A survey by L&C discovered, on average, younger borrowers thought they would be mortgage-free by the age of 51.
But it also discovered a third of current borrowers might have to re-evaluate their finances in later life because their estimated repayment age would be older than they expected.
L&C, an online mortgage broker, said the market was changing, with many people having to face up to the fact they would be paying off their mortgage into retirement. As such, many of the 18 to 34 year olds who thought they would have their mortgage paid off by their early fifties were being unrealistic, it said, and ought to start preparing for having the debt for longer.
The older borrowers appeared to have a more practical outlook on their finances. On average those in the 35 to 54 age group thought their mortgage would be paid off by 58 while those aged 55 and over thought they would be borrowing into retirement and up to 68.
Sadly, almost one in ten of those questioned in the over-55 age group said they would never be mortgage free.
Family responsibility
David Hollingworth from L&C said: “The optimism displayed by the younger generation is admirable but perhaps misplaced, and not realistic as our research shows that raising a family, among other commitments, can get in the way further down the line.”
He added: “People have to acknowledge they may be carrying this debt for longer than anticipated and plan accordingly. While some borrowers might be relaxed about borrowing later in life now, the debt isn’t going to magically disappear, and mortgage misery may become a reality down the line if they see a dip in income post retirement.”
Paying off your mortgage earlier
Hollingworth suggested one way borrowers could pay off their mortgage earlier was by ensuring they remortgaged when their deal comes to an end.
L&C’s survey found nearly a third of customers were on their lenders’ standard variable rate (SVR) which is the interest rate borrowers automatically switch to if they don’t remortgage. These rates are usually more expensive than new deals.
Hollingworth concludes: “While there may be specific circumstances where sitting on an SVR makes sense, for the most part this group of people could be getting a head start for later life by shopping around and saving themselves a small fortune.
Given people are worried about how they might afford re-payments as they get older, proactively taking action now could be the difference between paying off your mortgage before you retire or not.”
Don’t panic
For those who are worried about paying off their mortgage into retirement, Hollingworth offered reassurance. He said industry innovations for the ageing population meant older borrowers had more options at their disposal. Anyone feeling concerned should not panic and should seek expert advice.”
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