Surge in homeowners taking out new mortgages into retirement

Over a million people have taken out a new mortgage in the past three years that will run past the state pension age, a freedom of information request from LCP has revealed.

Figures based on mortgage data supplied by the Financial Conduct Authority to the Bank of England (BoE) showed that those under 40 are the fastest growing group of people taking out mortgages lasting into retirement, many of whom are first-time-buyers.

The data revealed a 29% increase in the number of people in their thirties taking out new mortgages that run past the pension age, which LCP suggested is likely in response to the unaffordability of house purchases for many younger people.

Separate information supplied by the BoE showed that just under a quarter (23%) of new mortgages to people in their thirties ran past pension age, a figure that now is just under two fifths (39%).

While LCP acknowledged that a mortgage taken out in someone’s thirties is highly unlikely to be someone’s last mortgage, it argued that 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.

In particular, LCP raised concerns that those who have mortgage debt at retirement may use their auto-enrolment pension pots to clear the debt, leaving little for retirement itself.

It also noted that while in the past people could spend their final years in work boosting their pension pot, having mostly paid off their mortgages, current and future savers may be deprived of a period pre-retirement when they might have paid off their mortgage.

Furthermore, LCP argued that mortgage lenders can have little certainty as to the future pension income of someone in their thirties today, and therefore cannot know if borrowers will have enough income in retirement to service a mortgage debt.

LCP partner, Steve Webb, 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.

“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.

“Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests.”

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