One in five people aged 55 and over with a mortgage expect to still be repaying it over the age of 70, with 7% saying they’ll never be able to repay what they owe.
Mortgage rates have soared in recent months following 13 consecutive rises in the Bank of England base rate, which now stands at 5%. According to research carried out by investment platform Hargreaves Lansdown, these hikes could force more homeowners to extend the loan later into their 60s, with one in six people expecting to be over the age of 65 by the time they repay their mortgage.
Sarah Coles, head of personal finance at Hargreaves Lansdown said: “More than one in six people will still be paying the mortgage after the age of 65, and recent hikes in mortgage rates could force more of them to extend the loan later into their 60s, with horrible implications for their finances.
“Higher mortgage rates are likely to mean even more people paying their mortgage later in life. It has pushed the average 2-year fixed rate deal to around 6.2%, according to Moneyfacts, causing a remortgaging nightmare for hundreds of thousands of people. As a result, lenders have agreed with the government to make it easier to temporarily extend the term of the mortgage, without affordability checks. It is designed to make short-term mortgage tweaks easier, but there’s every chance that people taking advantage may end up with a more permanent change, to make monthly payments affordable.”
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
Should I use my pension to pay off my mortgage?
When you reach age 55 (rising to 57 in 2028) you can access your defined contribution pension, and take up to 25% of this as a tax-free cash lump sum.
You could use this to repay some or all of your mortgage if you wish. This will reduce the amount you’ll receive from your pension pot in future, but it can help to reduce your mortgage costs if you use it to pay down your mortgage balance. However, if you have any it may be worth considering using your savings or other assets to pay down your mortgage before you dip into your pension, as using that will reduce your future retirement income.
Helen Morrissey: Head of retirement analysis, Hargreaves Lansdown said: “If you plan to pay your mortgage out of your pension, you need to do your calculations well in advance to be sure you can cover the cost. It’s not beyond the realms of possibility you can cover a small mortgage from your pension for the short term, but you need to work out what this will do to your outgoings and how this will eat into your retirement savings. If you are drawing from a pension, eating into the capital in the early days can have a huge impact further down the line.
Even if you manage to pay the mortgage before retirement, if you are forced to pay for longer, you could miss a key window of funding your pension. Traditionally once children left home and the mortgage was paid off, you had an opportunity to dramatically increase pension contributions. If you’re still repaying your mortgage into retirement, this opportunity will pass.”
Find out more in our guide What happens to my mortgage when I retire?
What other options do I have?
If you’ve still got several years to go before your mortgage is paid off, and your retirement income won’t be enough to cover your payments, you may want to consider working for longer, and phasing your retirement gradually. Phased retirement, as the name suggests, is when you gradually move into retirement, perhaps reducing your working hours over a period of several years.
Sarah Coles said: “For many people, working later in life will form part of the solution, but they’ll have a Plan B that can kick in if this isn’t possible. This could include using equity release to free up a lump sum to repay your mortgage. However, it’s important to understand the full cost. In addition to the fees, the interest on the loan will roll up and need to be repaid after you die. Over a ten year period, the amount payable on the loan can double.”
Learn more about phasing retirement and whether it could work for you in our article How can I phase my retirement? If you’re considering equity release, our article Should you use equity release to pay off your existing mortgage? may help.
You can read more about equity release in our article Equity release – what is it and how does it work?, or more about each kind of equity release product individually in Lifetime mortgages explained and Home reversion – what is it and how does it work?
If you’re looking for somewhere to start, you can get expert advice from an independent equity release specialist with Unbiased. They’ll listen to your needs and talk you through your options, so you can decide if equity release is the right option for you.
Another option could be to think about downsizing. Ms Coles said: “This can solve the problem, but do the maths if you’re planning this approach, because you may not free up as much as you’re expecting. You also need to be prepared to move out of the family home, which can be easier in theory than in practice.” Find out more about some of the things you’ll need to take into account if you want to downsize in our article Five questions to ask yourself if you’re considering downsizing your home.
Before you make any decisions, however, you should make sure you’re on the best possible mortgage deal. For example, if you’re currently paying your lender’s standard variable rate, remortgaging to a more competitive mortgage rate should reduce your monthly payments, often substantially. This may help you pay off what you owe more quickly.
Where to go for more help
Our mortgage affordability calculator can help give you an idea of how much you might be able to borrow based on your income and outgoings. If you prefer to speak to someone – arrange to get expert mortgage advice from an experienced mortgage advisor.
Once you have a rough estimate, it can be helpful to compare different mortgage options to understand what your monthly repayments are likely to be. You can simply enter a few basic details on our mortgage comparison tool, and we’ll compare mortgage deals across the whole of the market. From this, you can decide which deal might be most suitable for you.
Unless your situation is very straightforward, you may want to seek professional advice from a broker to find the best mortgage option for you. The advantage is that they will know which banks and building societies are more likely to accept your application. It’s definitely worthwhile if you are self-employed (unless you have been so for years) or your credit rating isn’t excellent.
If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
If you’re finding it hard to keep up with your mortgage repayments, please don’t suffer in silence. Our article What can you do if you can’t pay your mortgage? explains what to do if you’re struggling with higher costs.
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