Image source, Getty Images
- author, Kevin Beachy
- Role, Cost of Living Reporter
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It is estimated that hundreds of thousands of homeowners have taken out mortgages in the past three years and will continue to pay them off until retirement.
A significant rise in mortgage terms has been observed after state retirement age, especially in new home loans made to those under 30 years of age.
Figures from the Bank of England show how the share of new mortgages with a later expiry date has risen.
High mortgage rates have led many people to opt for an extended repayment term to control costs.
The figures emerged following a Freedom of Information (FoI) request made by Sir Steve Webb, the former Pensions Secretary who is now a partner at pensions consultancy LCP.
“The challenge of getting on the housing ladder is forcing large numbers of young homebuyers to gamble with their retirement prospects by taking out long-term mortgages,” he said.
He noted that using limited retirement savings to liquidate a mortgage could leave people more at risk of poverty in old age.
Careful thinking
The FoI followed the Bank of England’s Financial Policy Report which included mortgage data for the fourth quarter of 2023. 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 end date beyond the state pension age.
Two years later, about 42% of new mortgages had an expiration date during retirement, indicating the rising popularity of longer-term loans.
During the last three quarters, there were approximately 300,000 new mortgages in this category.
A great deal can change in the financial prospects of homeowners during their working lives.
A long-term mortgage can be replaced with a shorter-term mortgage as someone’s income rises, or they find other ways to pay their mortgage.
However, the pressures on young homeowners are clear with the share of over-retirement mortgages rising sharply.
The number of homeowners under the age of 30 taking out such mortgages doubled over the two-year period, while the number for those under the age of 40 rose by 30%.
Meanwhile, older age groups have seen a decline in mortgage deals.
This happened during two years of turmoil in the mortgage market. Rates are much higher now than they were at the end of 2021.
Young homeowners have opted for longer mortgage terms to make repayments easier to manage.
How long this trend may continue will depend largely on whether mortgage rates decline and then stabilize.
On Thursday, while the Bank of England kept its benchmark interest rate at 5.25%, it moved toward a summer rate cut and hinted at further cuts.
The bank’s governor, Andrew Bailey, said he was “optimistic that things are moving in the right direction” regarding the British economy, leading to speculation of a cut in key interest rates.
Ways to make your mortgage more affordable
- Make overpayments. If you still have some time to buy a deal at a low fixed rate, you may be able to pay more now to save money later.
- Move to an interest-only mortgage. It can keep your monthly payments affordable even though you won’t be paying off debt accumulated when you purchased your home.
- Extend the life of your mortgage. The typical mortgage term is 25 years, but terms ranging from 30 to 40 years are now available.
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