Young home buyers are being forced to gamble with their retirement by taking on ultra-long mortgages which run past pension age.
A Freedom of Information request from the Bank of England, submitted by LCP, found over a million people in the past three years took out mortgages which would run past the state pension age.
This is trend is increasing as 88,933 new mortgages which will run beyond state pension age were taken out in the last quarter of 2021, representing 31 per cent of all new mortgages taken out in that period.
Meanwhile, in the last quarter of 2022, 113,916 of these mortgages were taken out (38 per cent of all new mortgages) and 91,394 were taken in Q4 2023 (42 per cent).
Steve Webb, partner at LCP, said the “huge number” of mortgages which run past state pension age is “shocking”.
“The challenge of getting on the housing ladder is forcing large numbers of young home buyers to gamble with their retirement prospects by taking on ultra-long mortgages,” he explained.
“We already know that millions of people are not saving enough for their retirement and if some of that limited retirement savings has to be used to clear a mortgage balance at retirement they will be at even greater risk of poverty in old age.
“Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests.”
The FOI request showed this was a particular concern for younger savers as the number of people under 30 taking out mortgages which run past pension age has increased by 139 per cent from Q4 2021 to Q4 2023.
A similar increase was observed for savers in the 30-39 age group which increased by 29 per cent in the same period.
However, in contrast, the number of these long-term mortgages for all other age groups, from 40 upwards, decreased between 2021 and 2023.
Concerns
LCP pointed out those who have mortgage debt at retirement may use their modest auto enrolment pension pots to clear the debt, leaving little for retirement itself.
Additionally, in the past, when people mostly paid off their mortgage before the pension age, now they could spend their final years in work.
LCP warned that, even if mortgages only run to pension age (and not beyond), it deprives people of a period pre-retirement when they might have paid off their mortgage and be able to boost their pension.
Another concern was related to mortgage lenders which can have “little certainty” as to the future pension income of someone in their thirties today, so cannot know if borrowers will have enough income in retirement to service a mortgage debt.
tom.dunstan@ft.com
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