New data from a Bank of England FOI made by former pensions minister, Sir Steve Webb, has revealed that, in the last quarter of 2021, nearly a third – 31% – of new mortgages had an end date beyond the state pension age.
In Q4 2023, that figure rose to 42% of new mortgages.
Newspage asked brokers for their thoughts on this, the options available to borrowers and what the ramifications could be.
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Simon Bridgland, broke and director at Release Freedom:
“With first-time buyers increasing in age over the past decade, it was inevitable that the mortgage terms would creep up to and over what would be considered normal retirement age.
“People should do all that is within their power to overpay even by a seemingly small amount each month to reduce the likelihood of having to service a mortgage debt during retirement.
“On a mortgage of 230k over 35 years, an overpayment of £75 per month could reduce a mortgage term by five years.
“This, however, can become a problem when budgets are squeezed in times such as the current cost-of-living crisis or having children.
“I feel traditional mortgages will naturally morph into products which will permit later life borrowing beyond what we currently see from lenders, as the number of consumers demanding this flexibility grows.
“Not only is it first timers but also subsequent movers who are pressed to extend their mortgage term to keep it affordable when house prices have risen so much.”
Katy Eatenton, mortgage and protection specialist at Lifetime Wealth Management:
“I’m surprised the figure is as low as 42%. The majority of borrowers remortgaging are extending the term as long as possible to soften the blow of the huge jump in interest rates.
“Younger borrowers, meanwhile, are taking 35 to 40-year terms because they want to maximise their disposable income in the early years to allow them to build up savings or investments and then reduce the term when they remortgage, are earning more, or their circumstances change. This data highlights the bind many borrowers are in at present.”
Justin Moy, managing director at EHF Mortgages:
“Mortgages are currently taken over a longer period of time just to make them more affordable in the earlier years, while rates are higher and household costs are significant.
“On the surface, this data is highly concerning but in practice, there will be many opportunities to reduce the term at a more affordable time, as incomes improve and rates reduce, as rates mature and people move home or downsize.
“State retirement age is also likely to increase during this period, so this becomes a very small problem overall.”
Ben Perks, managing director at Orchard Financial Advisers:
“Many borrowers are stretching the term to alleviate the burden of higher interest payments in the short term.
“It makes good sense, as household budgets are stretched to breaking point. When rates are less volatile and the cost of living crisis settles, adjustments can be made.
“Mortgages are friendlier than they have ever been, so while this data is worrying statistically, in reality, borrowers will find ways to reduce the term.
“It is easy to arrange an overpayment monthly or even amend the term between fixed rate periods.”
Ranald Mitchell, director at Charwin Private Clients:
“The fact that, in the fourth quarter of 2023, more than four in 10 new mortgages were set to extend beyond the state retirement age reflects a concerning trend among homeowners.
“As individuals contend with the escalated cost of living while striving to fulfil their property ambitions, many are opting to lengthen their mortgage terms to the maximum limits to make housing more affordable.
“This choice, although common, may be short-sighted.
“Many homeowners embark on this path with the best intentions, planning to either work longer, shorten the mortgage term in the future, or consider selling their property if necessary.
“However, there is also a significant portion of borrowers who find themselves compelled to extend their mortgage terms merely to maintain possession of their homes amidst challenging interest rate conditions.
“This scenario could potentially lead to significant problems for them in the years to come. Retirement, based on this evidence, is a write-off.”
Jonathan Burridge, founding adviser at We Are Money:
“Having a term that extends past state retirement age, especially for first-time buyers, is not necessarily a long-term issue, provided it is reviewed and reduced as affordability improves.
“However, property prices, especially in London and the South East, continue to rise rampantly and affordability is becoming a greater mountain to scale.
“To buy a property in London and the South East now generally requires two incomes. Everyday costs have risen and mortgage costs have returned to a level not seen since before the Global Financial Crisis.
“At some point something will have to give, otherwise property ownership will become the exclusive realm of the financially elite. We need drastic and urgent changes to housing policy to make sure everyday people have the security of a permanent home.”
Michelle Lawson, director at Lawson Financial:
“This is what a higher interest rate environment results in.
“Given the rising interest rate environment of recent years and the constraints on affordability, borrowers have had little option but to take longer terms.
“People are borrowing into retirement out of necessity, not choice.
“That said, that doesn’t mean the term will stay like that forever. If interest rates come down, terms may be reduced.
“Affordability and monthly budgets are driving the payments and mortgage term for most.”
Riz Malik, director at R3 Mortgages:
“Mortgage borrowers are taking longer terms to account for the steep rise in interest rates we have seen over the past few years.
“The age people are eligible to take their state pension and the age at which they will finish working and their mortgage seems to be drifting further and further apart.”
Graham Cox, director at Self-Employed Mortgage Specialist SEMH:
“Ultra-long mortgages are fast becoming the norm for under 35s. What choice do they have?
“The young generation is caught between ever-increasing rents on one hand and near record high house prices and high mortgage rates on the other.
“They’ve been sold down the river by politicians of all persuasions.
“You know things are bad when Halifax, the UK’s largest mortgage lender, raises its maximum age using earned income to 75 from 70.”
David Stirling, independent financial adviser at Mint Mortgages & Protection:
“Longer term lending is here to stay, with interest rate uncertainty continuing and the general stress of cost of living remaining high.
“Longer term mortgages aren’t the end of the world – regular overpayments should be considered if affordable as this will help in the long-term to reduce the capital and term.”
Gary Bush, financial adviser at MortgageShop.com:
“It’s a sign of the times Ultra High Property Prices, Ultra High Fixed Mortgage Rates = Ultra Long Mortgage Terms.
“There is no alternative for borrowers who need to make their mortgages affordable initially, there’ll obviously be some term tweaking underway at the first mortgage renewal appointment with their advisers where applicable.”
