Many of us envisage retirement as a peaceful winding down after several decades of hard work.
But an increasing number of mortgage holders face having to put their relaxation on ice as they’re left with no choice but to work past their pension age to pay off long-term mortgages.
Homeowners are still reeling from painful interest rate increases by the Bank of England that pushed high street mortgage rates as high as 6.8%. Those who have taken out or renewed their mortgage in the past year have likely had their monthly payments rocket.
A recent BoE report revealed nearly half of all mortgages issued in the last three months of 2023 were for 30 years or longer, while two in five were issued to borrowers who would be past state pension age at the end of their mortgage term.
Different figures from UK Finance show 41,580 first-time buyers took out mortgages with terms of 30 years or more in the last quarter of 2023, of which around 15,700 (38%) were longer than 35 years.
‘I’ll be paying until I’m 75’
One single homeowner from Hove, who asked not to give her name, told the Money blog even though she had a “healthy deposit” for the flat she bought a year and a half ago, the mortgage was still a “big stretch” and she will be paying it off until she is 75.
“I can’t get it down, I need to keep working,” she said.
“When I’m older I will have no other source of guaranteed income other than company pension and state pension, they won’t cover my mortgage and other expenses.”
Stephen Eblet’s mortgage is set to run until he is 68 – one year past his pension age. He says he has enough in his private pension to pay it off, but doing so will impact his finances in retirement.
The 62-year-old self-employed plumber, who lives in Gristhorpe, near Scarborough, suffers with musculoskeletal pain and is worried about “making the finish line” at 67, a retirement age he says is “far too high” for manual labourers.
“My anxiety levels are rocketing,” he said. “I’m terribly worried about having to finish work early because of back problems and where that will leave me with a mortgage and how it will impact my lifestyle should I have to retire.”
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Taking out a long-term mortgage doesn’t necessarily mean you’re locked in.
There is the option to shorten the term at the end of your fixed-rate period or move to a less expensive home to cut off some of the debt.
This is the case for Danielle Steele, 39, from Swindon, who has a mortgage with her husband that is set to end when they are 71.
They plan to downsize once their two daughters leave home in around a decade or so, meaning they’re not too concerned at this point.
Father-of-four David Clarkson, 41, who lives in Flintshire, said he and his wife recently opted for a mortgage that will take them to 75, with a rate fixed for three years. It kept his payments within £150 of what they were paying before.
He is hoping interest rates will drop in the next three to six years to allow them to pay it off in time.
“So far we’ve not had to change too many aspects of daily life, but this will change in the coming years if wages don’t go up or prices continue to rise,” he said.
Steve, 51, from Scotland, said his mortgage goes three years past his pension age – but it’s a “calculated risk”.
“We hope we’ll get inheritance to pay off our mortgage sooner. Not that you want older relatives to die, but it seems a lot of people need to rely on that these days,” he said.
Long-term means high interest
Gerard Boon, managing director of online mortgage broker Boon Brokers, says staff have seen a rise in clients reporting that they’ll have to worker longer and later in life to settle their bills.
“We always ask how long people are willing to work. Five or six years ago or even just pre-COVID… people would normally say their retirement age [is] 66 or 67 years old and that was fairly standard. But now, more often than not, people are saying [they’ll] have to work until 70 or maybe 75,” he said.
He noted that some lenders have “cottoned on” to this fact and are raising the age cap on their mortgages as a result. Others remain more cautious, such as Halifax, which recently cut the cap from 75 to 70 years for some of its products.
Mr Boon said his advice to clients is always to opt for a shorter term if possible, as they will pay “far more” interest over the course of a longer-term deal – but for many it’s just not feasible.
“I would say the vast majority of applications, especially for first-time buyers in the age range of 20 to 25, they’ve opted for the longest time period,” he said.
“People are trying to get their costs down… I think a lot of people are taking these longer mortgage terms with the hopes that they’ll be able to refinance at a later date to shorten the term.”
What are lenders’ rules around retirement age?
UK lenders will have age limits for mortgage lending – one being a cap on the maximum age you can take one out, and another for paying them off.
Different lenders will have different rules on what age they require the debt to be paid by.
The upper age limit for paying off a mortgage typically ranges between 70 and 85, while most will not let you enter a new deal past the age of 80.
Individual circumstances, such as income, employment status and credit history, will also affect eligibility as they would for any borrower.