Mortgage: Britons may still be paying debt past 65 – can you retire at state pension age?

A mortgage is one of the most significant financial burdens a person will ever have to take on in their lives. It is a big decision, and repayments can often last for decades. Britons will not only have to meet the cost of the mortgage they originally took out upon purchase of their home, but also the interest on the repayments which accrues over time. Often, then, it can seem like a challenging goal to pay off one’s mortgage. This appears to be the case for increasing numbers of people who will now be saddled with a mortgage into later life, research has shown.

A study undertaken by UK Finance has shown more than half of new mortgage lending is going to borrowers who will not have paid off the loan before their 65th birthday.

The trade association stated that in 2021, 52 percent of new homeowner mortgage lending has been taken out under terms which are set to end beyond the borrower’s 65th birthday.

Traditionally, state pension age was set at 60 for women and 65 for men, but changed to 65 for both, as part of state pension age parity measures.

However, more recently, this has been uprated to 66, with further increases on the horizon for Britons in the future. 

READ MORE: Savings warning as ‘hard-working’ Britons urged to take action

But with longer mortgage terms, there may also be concerns amongst Britons about when they will actually be able to retire.

As a mortgage is a major and regular financial commitment, many people will be using their salary or wages to cover the cost. However, as many people lose this security when they retire, it may not actually be possible to leave the workforce in some instances without repayments being met.

UK Finance has said within the wider later life lending market, certain products have increased in popularity. These include lifetime mortgages, or equity release products.

Over the last seven years, many homeowners have been turning to this option in order to access the equity in their homes and gain further financial support.

Equity release, however, is not a decision which should be taken lightly. It can have implications as repayments need to be made, which could mean less for loved ones to inherit.

For this reason, individuals are generally encouraged to seek advice if looking towards equity release arrangements. 

Jim Boyd, chief executive of the Equity Release Council, also commented on the matter.

He said: “Attitudes towards home finance in later life have changed, and homeowners are increasingly comfortable with mortgage borrowing into retirement and open to the benefits of realising some of their property wealth as they age.

“Property wealth can play an important part in a holistic approach to funding retirement and, as an industry, we must work together to ensure consumers get the information they need to weigh up increasingly complex financial decisions to do this.”

Recently, a study by Hargreaves Lansdown stated one in six adults expect to be paying off a mortgage in retirement, showing that a paid-off home might be a distant dream for many.

Sarah Coles, personal finance analyst with the firm, stated: “Even if you snap up a property at the average age of 30, and take out a 25-year mortgage, it only takes the odd life hiccup to push payments into your 60s. If you end up dipping into your property equity, or face divorce, you can push your final repayment date back beyond retirement.

“However, if your pension can’t cover [your mortgage payments] and you’re relying on being able to work later in life, you open yourself to all sorts of risks.”

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