Over-55s brace for mortgage crunch as fixed rates end – Key

Over-55 mortgage holders face paying up to £5,000 more per year, while one in eight fear slipping into arrears, according to Key Later Life Finance.

The study found that 47% of over-55s with mortgages expected their monthly repayments to rise by an average £400 a month – nearly £5,000 a year – while 30% were unsure what would happen to their monthly payments.

13% of those surveyed were worried they would slip into arrears on their mortgage as they head for retirement.

Currently, according to moneyfacts, the best rates for 2-year and 3-year fixed rate mortgages are 4.54% and 4.49% respectively, with many over-55s remortgaging from deals at around 2% or lower.

Key recently launched its Payment Term Lifetime Mortgage to support later life homeowners struggling to meet increased monthly mortgage repayments as fixed rate deals end.

Borrowers have to commit to a period of mandatory payments which last until the oldest applicant’s 66th birthday, but payments only have to be partial monthly interest payments.

Other recently launched options include the Interest Reward Lifetime Mortgage, a new type of equity release product which rewards customers with lower interest rates when they commit to making repayments.

All of these options show the growing range of choices for over-55 homeowners that deliver different solutions versus trying to remortgage or reverting to their lenders standard variable rate (SVR) but seeking specialist advice is essential.

Key’s research showed growing interest in the wider range of options – 44% of over-55 homeowners said they were completely or very aware of later life lending options, and 36% said they are interested in PLTMs with 6% very interested.

On average, over-55s are paying £700 month, with mortgage repayments accounting for around 20% of their monthly outgoings underlining the financial pressure older homeowners are under from the cost-of-living crisis as they try to juggle bills with saving for retirement.

Around one in seven (15%) said mortgage repayments accounted for 30% or more of their monthly outgoings, and 11% said monthly repayments totalled £1,500 or more.

The research showed over-55s were taking action to limit increases – one in five took advice on reducing their mortgage repayments and one in four spoke to their current lender.

Over-55s were also making major financial sacrifices to pay off their mortgages before they retire even if they are not worried about rates rising – 57% expected to pay their home loans have made cutbacks and are most likely to have cut spending in general, while 18% say they have worked for longer than they planned.

Chris Bibby, managing director at Key, said: “Over-55s homeowners at the end of fixed rate deals are facing substantial increases which will have a major impact on their finances.

“Our research shows average increases will be around £400 a month and when homeowners are already spending 20% of their income on mortgage repayments that will make a big difference to budgeting particularly for people who are also trying to prioritise pension savings. For many it will be impossible and something will have to give.

“The later life lending market is evolving rapidly, so over 55s should seek specialist advice to be able to look at the burgeoning number of product options available.

“There are options that may not be part of a mainstream lenders portfolio that could provide a better outcome for many.”

To find out more about the current state of the later life lending market, subscribe to receive the upcoming focus issue of The Intermediary.