Two fifths of homeowners will still be paying their mortgage off in retirement as interest rates stay high
Mortgages are becoming increasingly expensive, leading to more people taking out longer loans to reduce their monthly repayments.
Some 41 per cent of homeowners are now expected to still be paying their mortgages off when they are in their retirement, according to new data. Over a quarter of these are held by those who will be over 70 at maturity, figures from Equifax show.
Rising interest rates, paired with high inflation, have created an unsustainable situation for many mortgage borrowers of all ages.
Mortgage rates remain stubbornly high, with the average two-year fixed deal currently 6.76 per cent while a five-year is at 6.25 per cent.
As a result, more people are taking out longer loans, which reduce their monthly payments. While this can be a good temporary fix, it does mean that people will continue to pay their mortgage off for years to come.
The data revealed that of the homeowners whose loans will not mature until they are past 66, 40 per cent are already aged 55 or over and, of those, 16 per cent have a remaining mortgage balance over £100,000.
Furthermore, nearly half as many borrowers are over 55 and have contractual monthly repayments over £1,000.
With interest rates climbing to a 15-year high of 5.25 per cent, average monthly mortgage repayments have seen a 15 per cent year-on-year increase.
The number of mortgages with monthly repayments over £1,000 has also seen a 28 per cent year-on-year increase.
For consumers borrowing into retirement age, the average outstanding mortgage balance for those over 55 is £116,2613, with the average monthly repayment for this group sitting at £680.
Older homeowners who are already close to retiring may find themselves unable to get further extensions from lenders, and instead face increased monthly repayments alongside other heightened expenses like food and utilities.
On top of that, the average pension pot for over 55s across the UK is only £107,300 showing that most UK pensioners already don’t have sufficient savings to enjoy a comfortable retirement, and the prospect of high outstanding mortgage repayments will be a further burden.
While several large lenders in the UK have started cutting mortgage rates in recent weeks due to intensified home loan market competition, borrowers continue to face very high costs. People of different ages are faced with varying options to manage this.
Paul Heywood, chief data and analytics officer at Equifax, said: “Faced with higher monthly repayments, many borrowers are extending their loan terms for years into the future, hoping to spread out costs to ease the financial burden.
“However, this is not available to all customers equally. Customers nearing retirement age are one of the toughest-hit groups, with many set to still be repaying their mortgages well beyond retirement age. Some members of this older demographic are unable to extend their terms further, meaning they are faced with more expensive monthly repayments.”
Homeowners facing this dilemma are encouraged to reach out to their lender to explore what options are available to them, which may include potentially downsizing to remove a significant financial outlay.
