42% of new mortgages in the final quarter of 2023 – or 91,394 – had terms going beyond the state pension age
Young home buyers are being forced to gamble with their retirement prospects by taking on ultra-long mortgages, according to a former pensions minister.
According to freedom of information (FOI) data supplied by the BoE, 42% of new mortgages in the final quarter of 2023 – or 91,394 – had terms going beyond the state pension age.
In the same period a year earlier, 38% of new mortgages had a term ending beyond state pension age and in the same period in 2021, 31% of new mortgages went beyond state pension age.
The figures were obtained by Sir Steve Webb, a former Liberal Democrat pensions minister, who is now a partner at LCP.
He said that, based on the figures obtained for the last three months of each year, this indicates that over the past three years more than one million new mortgages have been issued with end dates beyond state pension age.
In the final quarter of 2023, people aged 30 to 39 accounted for 30,943 new mortgages lasting beyond state pension age and people aged 40 to 49 accounted for 32,305.
Under-30s made up 3,676 of these mortgages, people aged 50 to 59 accounted for 18,854, 60 to 69-year-olds made up 4,955 and people aged 70-plus made up 661.
Sir Steve highlighted concerns that some people may not be able to afford to service a mortgage once they retire and will raid their pension savings to clear their mortgage, leaving them with less to live on in old age.
The data was based on mortgage figures supplied by the FCA to the Bank of England.
Although a mortgage taken out in someone’s 30s, perhaps as a FTB, is highly unlikely to be someone’s last mortgage, the risk to retirement depends on what happens over the course of their working life and whether or not they are able to shorten the term, Sir Steve added.
He said that, in the past, when people had mostly paid off their mortgage before pension age, they could spend their final years in work boosting their pension pot.
Even if mortgages only run up to pension age, it deprives people of a period running up to retirement when they could be mortgage-free and boosting their pension, he added.
He also said some people will have dropped out of the labour market before reaching their pension age.
As well as making overpayments as and when this is possible to reduce the size of a mortgage, some people may decide to downsize to a smaller property, or turn to equity release to free up cash in their later years. There are considerations to weigh up with equity release, such as the money that will be left behind for an inheritance.
Some borrowers may be hoping to receive an inheritance themselves to help them eventually clear their mortgage.
He said: The huge number of mortgages which run past state pension age is shocking.
The challenge of getting on the housing ladder is forcing large numbers of young home buyers to gamble with their retirement prospects by taking on ultra-long mortgages, he said.
He added: We already know that millions of people are not saving enough for their retirement and if some of that limited retirement saving has to be used to clear a mortgage balance at retirement they will be at even greater risk of poverty in old age.
He added: Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests.
