Mortgage payments forecast for retirement could be red herring, experts say | Personal Finance | Finance

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Hundreds of thousands of Britons face still paying off their mortgages into retirement age – but property experts say that this might not be as worrying as it seems.

Data from a Bank of England FOI made by former pensions minister, Sir Steve Webb has found that 42 percent of new mortgages taken out in the last quarter of 2023 had an end date beyond the state pension age. This is an increase of 11 percent from the last quarter of 2021.

Katy Eatenton, Mortgage & Protection Specialist at Lifetime Wealth Management, told Newspage she was “surprised the figure is as low as 42 percent”.

She said: “The majority of borrowers remortgaging are extending the term as long as possible to soften the blow of the huge jump in interest rates.

“Younger borrowers, meanwhile, are taking 35-40 year terms because they want to maximise their disposable income in the early years to allow them to build up savings or investments and then reduce the term when they remortgage, are earning more, or their circumstances change. This data highlights the bind many borrowers are in at present.”

Simon Bridgland, Broker/ Director at Release Freedom, said: “With first-time buyers increasing in age over the past decade, it was inevitable that the mortgage terms would creep up to and over what would be considered normal retirement age.

“People should do all that is within their power to overpay even by a seemingly small amount each month to reduce the likelihood of having to service a mortgage debt during retirement. On a mortgage of 230k over 35 years, an overpayment of £75 per month could reduce a mortgage term by 5 years.

“This, however, can become a problem when budgets are squeezed in times such as the current cost of living crisis or having children.

“I feel traditional mortgages will naturally morph into products which will permit later life borrowing beyond what we currently see from lenders, as the number of consumers demanding this flexibility grows.

“Not only is it first timers but also subsequent movers who are pressed to extend their mortgage term to keep it affordable when house prices have risen so much.”

Justin Moy, Managing Director at EHF Mortgages said: “Mortgages are currently taken over a longer period of time just to make them more affordable in the earlier years, while rates are higher and household costs are significant.

“On the surface this data is highly concerning but in practice there will be many opportunities to reduce the term at a more affordable time, as incomes improve and rates reduce, as rates mature and people move home or downsize.

“State retirement age is also likely to increase during this period, so this becomes a very small problem overall.”

Ben Perks, Managing Director at Orchard Financial Advisers told Newspage: “Many borrowers are stretching the term to alleviate the burden of higher interest payments in the short term.

“It makes good sense, as household budgets are stretched to breaking point. When rates are less volatile and the cost of living crisis settles, adjustments can be made.

“Mortgages are friendlier than they have ever been, so while this data is worrying statistically, in reality borrowers will find ways to reduce the term. It is easy to arrange an overpayment monthly or even amend the term between fixed rate periods.”

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