"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."
- Steve Webb, partner at pension consultants LCP
Data supplied under the Freedom of Information Act by the Bank of England reveals that over a million people in the last three years took out new mortgages which would run past state pension age.
The fastest growing group of people taking out mortgages lasting into retirement is those aged under 40, many of whom are first-time-buyers.
The data, obtained by Steve Webb, partner at pension consultants LCP, was based on mortgage data supplied by the FCA to the Bank of England.
In Q4 2021, 88,933 (31%) of new mortgages had a term end beyond state pension age, rising to 113,916 (38%) in Q4 2022 and 91,394 (42%) in Q4 2023.
Multiplying the quarterly figures by four to get annual figures, this suggests that over the last three years over 1 million new mortgages have been issued with end dates beyond state pension age.
In the key group of people in their 30s, mostly taking their first step on the housing ladder, there has been a 29% increase in the absolute number taking out new mortgages which run on past pension age.
Discussing the risk to retirement for people taking out mortgages past pension age, Webb noted:
a) Those who have mortgage debt at retirement may use their modest auto enrolment pension pots to clear the debt, leaving little for retirement itself and jeopardising their later life standard of living;
b) In the past, when people 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 to pension age (and not beyond), it deprives people of a period pre-retirement when they might have paid off their mortgage and be able to boost their pension;
c) Mortgage lenders can have little certainty as to the future pension income of someone in their thirties today, so cannot know if borrowers will have enough income in retirement to service a mortgage debt;
d) Growing numbers of people have dropped out of the labour market before reaching pension age which puts extra pressure on keeping up payments on a long-term outstanding mortgage.
Steve Webb commented: “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.”
