As more people take out long-term mortgages, worried homeowners are telling the Money team they will have to work longer and later to pay what they owe.
Many of us envision retirement as a peaceful rest after several decades of hard work.
But a growing number of mortgage holders face having to put their relaxations on hold as they have no choice but to work past retirement age to make repayments over the long term. mortgages.
Homeowners are still reeling from painful interest rate hikes Bank of England this pushed prime mortgage rates up to 6.8%. Those who took out or renewed a mortgage in the past year have likely seen their monthly payments skyrocket.
A recent BoE report revealed that nearly half of all mortgages issued in the last three months of 2023 were for 30 years or longer, while two in five were issued to borrowers who would have reached retirement age at the end of the mortgage term.
Various figures from UK Finance show that in the last quarter of 2023, 41,580 first-time buyers took out mortgages with terms of 30 years or more, of which around 15,700 (38%) were over 35 years old.
‘I’ll pay until I’m 75’
One Hove homeowner, who asked not to be named, had this to say Money blog even though she had a “healthy down payment” on the apartment she bought a year and a half ago, the mortgage was still “a big drag” and she’ll be paying it off until she’s 75.
“I can’t get it down, I have to keep working,” she said.
“When I’m older I won’t have any other source of guaranteed income other than the company pension and the state pension, they won’t cover my mortgage and other expenses.”
Stephen Eblet’s mortgage will run until he is 68 – one year past his retirement age. He says he has enough in his private pension to pay it off, but it will affect his finances in retirement.
The 62-year-old self-employed plumber, who lives in Gristhorpe, near Scarborough, suffers from musculoskeletal pain and fears he will “hit the finish line” at 67, a retirement age he says is “too high” for manual workers. .
“My anxiety levels are skyrocketing,” he said. “I’m really worried about having to quit work early because of my back problems and where that will leave me with my mortgage and how it will affect my lifestyle when I have to retire.”
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Taking out a long-term mortgage doesn’t necessarily mean you’re locked in.
There is the option to shorten the term at the end of your fixed rate term or move to a cheaper home to cut some of your debt.
That’s the case for Danielle Steele, 39, from Swindon, who has a mortgage with her husband that will end when they turn 71.
They plan to downsize once their two daughters leave home in about a decade, which means they’re not too worried at the moment.
Father-of-four David Clarkson, 41, who lives in Flintshire, said he and his wife had recently decided on a mortgage that would take them until they were 75, with a rate fixed for three years. It keeps his payments within £150 of what they were paying before.
He hopes that interest rates will fall in the next three to six years so that they can repay them on time.
“We haven’t had to change too many aspects of daily life so far, but that will change in the coming years if wages don’t rise or prices continue to rise,” he said.
Steve, 51, from Scotland, said his mortgage is three years past his pension age – but it’s a “calculated risk”.
“We’re hoping to get an inheritance to pay off our mortgage early. Not that you want elderly relatives to die, but it seems that’s what a lot of people have to rely on these days,” he said.
Long term means high interest
Gerard Boon, chief executive of online mortgage broker Boon Brokers, says staff have seen an increase in clients reporting having to work longer and later hours to meet their bills.
“We always ask how long people are willing to work. Five or six years ago or even before COVID… people would normally say their retirement age [is] 66 or 67 years old and that was pretty standard. But now, more often than not, people say [they’ll] I have to work until 70 or maybe 75,” he said.
He noted that some lenders have “got a kick out of” this fact and are raising the age limit on their mortgages as a result. Others remain more cautious, such as Halifax, which recently reduced the cap from 75 to 70 years for some of its products.
Mr Boon said his advice to clients is always to go for a shorter term if possible, as they will pay “a lot more” in interest over the course of a longer-term deal – but for many this is simply not feasible.
“I would say the vast majority of applications, especially for first-time buyers in the 20-25 age range, have chosen the longest time period,” he said.
“People are trying to reduce their costs … I think a lot of people are taking these longer mortgage terms with the hope that they can refinance later and shorten the repayment period.”
What are the lenders’ rules regarding retirement age?
Lenders in the UK will have age limits for providing mortgage loans – one is the maximum age you can marry and the other is for repayment.
Different lenders will have different rules about how old they require the debt to be repaid.
The upper age limit for paying off a mortgage is usually between 70 and 85, with most not allowing you to take out a new contract after the age of 80.
Individual circumstances such as income, employment status and credit history will also affect eligibility, as they would for any borrower.