Many of us imagine retirement as a peaceful end to several decades of hard work.
But more and more mortgage holders are having to put their relaxation on hold because they have no choice but to work beyond retirement age to pay off long-term debt. Mortgages.
Homeowners are still suffering from the painful interest rate increases of the Bank of England This caused mortgage rates on the high street to rise to as much as 6.8%. Anyone who took out or renewed a mortgage last year was likely to have to expect a sharp increase in monthly payments.
A recent BoE report found that almost half of all mortgages issued in the last three months of 2023 had a term of 30 years or more, while two in five were given to borrowers who would have exceeded state pension age at the end of their mortgage term.
Other figures from UK Finance show that in the final quarter of 2023, 41,580 first-time buyers took out mortgages of 30 years or more, of which around 15,700 (38%) had a term of over 35 years.
“I will pay until I am 75”
A single homeowner from Hove, who did not want to give her name, told the Money blog Although she had made a “decent down payment” on the apartment she bought a year and a half ago, the mortgage was still a “big burden” and she will have to pay it off until she is 75.
“I can’t get it down, I have to keep working,” she said.
“When I’m older, I have no other guaranteed source of income apart from my company pension and state pension. It won’t cover my mortgage and other expenses.”
Stephen Eblet’s mortgage runs until he is 68 – one year past his retirement age. He says his private pension has enough money to pay it off, but it will affect his finances in retirement.
The 62-year-old self-employed plumber, who lives in Gristhorpe, near Scarborough, suffers from musculoskeletal pain and is worried about reaching retirement age at 67, which he believes is “far too high” for workers.
“My anxiety levels are skyrocketing,” he said. “I’m terrified that I’m going to have to leave work early because of back problems, and that I’m going to have a mortgage and how that’s going to affect my lifestyle when I have to retire.”
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Taking out a long-term mortgage does not necessarily mean that you are tied to a fixed term.
You may have the option to shorten the term at the end of your fixed rate period or move to a cheaper home to reduce some of the debt.
This is the case for 39-year-old Danielle Steele from Swindon, who has a mortgage with her husband that expires when they both reach the age of 71.
They plan to downsize once their two daughters are out of the house in about ten years, so they aren’t too worried at the moment.
David Clarkson, a 41-year-old father of four, lives in Flintshire. He and his wife recently opted for a mortgage that would finance them for up to 75 years, with an interest rate fixed for three years, keeping his repayments below £150 compared to what they were paying before.
He hopes that interest rates will fall in the next three to six years so that they can pay back the debt on time.
“So far we have not had to change too many things in our daily lives, but that will change in the next few years if wages do not rise or prices continue to rise,” he said.
Steve, 51, from Scotland, said his mortgage runs three years beyond his retirement age – but it was a “calculated risk”.
“We’re hoping to get an inheritance so we can pay off our mortgage faster. It’s not that you want older relatives to die, but a lot of people seem to rely on it these days,” he said.
Many borrowers have taken out mortgages that extend until their retirement age. Image: PA
Long term means high interest rates
Gerard Boon, managing director of online mortgage broker Boon Brokers, says staff have seen an increase in customer reports of having to work longer and into old age to pay their bills.
“We always ask how long people are willing to work. Five or six years ago, or even before COVID… people would normally have said their retirement age. [is] 66 or 67 years old and that was pretty normal. But now people usually say [they’ll] have to work until they’re 70 or maybe 75,” he said.
Gerard Boon says he advises his clients to opt for the shortest possible term
He noted that some lenders have “seized on” this fact and are therefore raising the age limit on their mortgages. Others are remaining more cautious, such as Halifax, which recently lowered the age limit on some of its products from 75 to 70.
Mr Boon said he always advises his clients to choose a shorter term if possible because they would pay “far more” in interest on a longer term contract. But for many, this is simply not feasible.
“I would say the vast majority of applications, particularly first-time buyers aged 20 to 25, have opted for the longest period,” he said.
“People are trying to reduce their costs. I think a lot of people are taking on these longer mortgage terms in the hope that they can refinance at a later date and shorten the term.”
What rules do lenders have regarding retirement age?
In the UK, there are age limits for obtaining a mortgage. One is a cap on the maximum age at which you can take out a loan and another is a cap on repayment.
Different lenders have different rules about the age by which debts must be repaid.
The upper age limit for repaying a mortgage is usually between 70 and 85 years. In most cases, it is no longer possible to conclude a new contract after the age of 80.
Personal circumstances such as income, employment status and credit history affect eligibility, just like any other borrower.