As more people take out long-term mortgages, concerned homeowners tell the Money team they will have to work longer and later in life to pay what they owe.
Many of us see retirement as a peaceful winding down after decades of hard work.
But an increasing number of mortgage holders are faced with having to put their relaxation on hold as they have no choice but to continue working past retirement age to make long-term repayments. mortgages.
Homeowners are still reeling from the painful US interest rate hikes bank of England causing mortgage rates to rise to 6.8% in high street markets. Those who took out or extended their mortgages in the past year have likely seen their monthly payments increase.
A recent BoE report shows that almost half of all mortgages issued in the last three months of 2023 had a term of 30 years or more, while two in five were made to borrowers nearing the end of their term. their mortgage would have reached the state pension age.
Various figures from UK Finance show that in the last quarter of 2023, 41,580 first-time buyers took out a mortgage with a term of 30 years or longer, of which approximately 15,700 (38%) were longer than 35 years.
‘I’ll pay until I’m 75’
A single homeowner from Hove, who asked not to be named, spoke out Money blog Even though she had a “healthy down payment” on the condo she bought a year and a half ago, the mortgage was still a “big chunk” and she will pay it off until she is 75.
“I can’t get rid of it, I have to keep working,” she said.
“When I’m older, I won’t have any 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 continue until he is 68, a year after his retirement age. He says he has enough in his private pension to pay it off, but this will impact his finances when he retires.
The 62-year-old self-employed plumber, who lives in Gristhorpe, near Scarborough, suffers from musculoskeletal pain and is concerned about ‘crossing the finish line’ at 67, a retirement age he says is ‘way too high’ is for manual workers. .
“My anxiety levels are skyrocketing,” he said. “I’m terribly concerned that I will have to stop working early due to back problems, what my mortgage will be for and what consequences this will have for my lifestyle when I have to retire.”
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Taking out a long-term mortgage does not necessarily mean that you are stuck.
There is the option to shorten the term at the end of your fixed-rate period or move to a cheaper home to pay off part of the debt.
This is the case for Danielle Steele, 39, from Swindon, who has a mortgage with her husband that expires when they are 71.
They plan to downsize once their two daughters leave home in about a decade, which means they’re not too worried right now.
Father-of-four David Clarkson, 41, who lives in Flintshire, said he and his wife recently opted for a mortgage that will take them to 75, with an interest rate fixed for three years. It kept its payments within £150 of what they were previously paying.
He hopes that interest rates will drop over the next three to six years so that they can pay off the interest on time.
“So far we have not had to change too many aspects of daily life, but this will change in the coming years if wages do not rise or prices continue to rise,” he said.
Steve, 51, from Scotland, said his mortgage is three years above his retirement age but it is a “calculated risk”.
‘We hope that we will receive an inheritance to pay off our mortgage sooner. Not that you want older relatives to die, but it seems like a lot of people have to rely on that these days,” he said.
Long term means high interest rates
Gerard Boon, director of online mortgage broker Boon Brokers, says staff have seen an increase in the number of customers reporting they will have to work longer and later in life to pay their bills.
“We always ask how long people are willing to work. Five or six years ago, or even before the corona crisis… people would normally say their retirement age [is] 66 or 67 years old and that was pretty standard. But now people say more often than not [they’ll] have to work until 70 or maybe 75,” he said.
He noted that some lenders have “caught up” on this fact and are raising the age limit on their mortgages as a result. Others remain more cautious, such as Halifax, which recently lowered the age limit for some of its products from 75 to 70.
Mr Boon said his advice to customers is to always opt for a shorter term option if possible, as they will pay “a lot more” in interest on 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 to 25 age range, have opted for the longest period,” he said.
“People are trying to get their costs down… I think a lot of people are getting these longer mortgage terms in the hope that they can refinance at a later date to shorten the term.”
What are the lenders’ rules regarding retirement age?
British lenders will apply age limits for granting mortgages. One is a limit on the maximum age at which you can take one out, and another on paying it off.
Different lenders will have different rules about the age at which they require the debt to be paid.
The maximum age limit for paying off a mortgage is usually between 70 and 85 years, while in most cases you can only conclude a new deal after the age of 80.
Individual circumstances, such as income, employment status and credit history, will also affect eligibility, as they do for any borrower.