Mortgage warning issued over specific deals taken due to surging interest rates | Personal Finance | Finance

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A mortgage expert has called the news that Brits will be paying their mortgages past retirement age “concerning”.

The data on these lengthy mortgages comes from a Bank of England FOI made by former pensions minister, Sir Steve Webb which 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.

Claire Flynn, a spokesperson for Mojo Mortgages said: “The recent data revealing that over a million new mortgages issued in the past three years have end dates beyond the state pension age is concerning.

“While longer mortgage terms can provide some short-term relief in the form of lower mortgage payments, they can come with long-term implications for borrowers’ retirement prospects.”

This means that Brits could become trapped in these long term mortgages and they can lead to financial insecurity in old age.

Miss Flynn said: “Beyond paying more overall, mortgage borrowers may be forced to use their hard-earned pension funds to pay off their outstanding mortgage balance upon retirement. This could undermine their financial security in their golden years and increase the risk of poverty in old age.

“In less extreme cases, longer mortgage terms may deprive borrowers of an important period leading up to retirement when they could have been mortgage-free. This window of opportunity can be used to boost pension contributions or to enjoy experiences and activities that may not have been possible during their working years.”

Research from Mojo Mortgages found that the average house (priced at £264,500 is likely to cost a total of £384,300 over a 25-year loan term due to the interest costs.

If the loan term is extended to 30 years the same house will cost an extra £44,460. And if you extend it even longer to a 35 year period, the same property will cost an extra £90,720.

On a more positive note Miss Flynn said: “Mortgage rates remain much higher than a few years ago. And many people are likely expecting to work beyond the state pension age. So, borrowers may see the appeal of taking out a longer-term mortgage, to benefit from more manageable monthly payments in the short term.”

Miss Flynn advises those that plan on taking out these long term mortgages to take these piece of advice:

  • If you find yourself with extra cash at any point, consider overpaying your mortgage in order to reduce your mortgage term. Lenders usually allow you to overpay by a certain amount before you have to pay additional fees. Check the overpayment limits when taking out a new mortgage so you know what your options are.

  • The rate you pay is even more important when you take out a longer mortgage term, due to the additional interest costs. Speak to a whole-of-market mortgage broker who can compare deals across lots of lenders to find the best one for you.

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