Pension savers are warned they could end up losing their “already inadequate” retirement pots as they scramble to clear their mortgage balance post state pension age.
More than two in five new mortgages now extend beyond pension age, raising serious concerns about retirement financial stability, new data from the Bank of England has shown.
The latest figures show 42 per cent of mortgages now run past retirement age, marking a significant shift in lending patterns that experts warn could force savers to drain their pension pots to clear mortgage debt.
This trend is becoming a norm in the mortgage market, with over a million new mortgages issued since the end of 2021 that will continue into borrowers’ retirement years.
Steve Webb, partner at pension consultants LCP said: “There is increasing evidence that taking out a mortgage which runs past pension age is an entrenched feature of the mortgage market rather than a temporary blip.
“This has profound implications for retirement planning, as it is likely to mean that savers may end up using up already inadequate pension pots to clear a mortgage balance.”
The growth in new long-term mortgages seems to have happened primarily at younger ages
GETTY
Over the last two years (from 2022 to 2024), the growth in new long-term mortgages seems to have happened primarily at younger ages, with a 30 per cent increase in the absolute number of under forties taking out mortgages set to run into retirement.
One reason for these exceptionally long mortgage terms may be affordability, with younger borrowers opting for extended terms in response to high interest rates.
However, despite mortgage rates now seeming to be on a downward trajectory, the proportion of new mortgages with these long durations remains at around two in five.
Webb warned: “Anyone involved in helping today’s workers plan for their retirement must now factor in the possibility that housing costs will run into retirement or will have to be funded from already meagre pension pots”.
Recent data from Nucleus shows retirement confidence has plummeted to just 4.6 out of 10, down from 6.9 in 2023. Those aged between 35 and 54 are particularly pessimistic, scoring just 3.7 on the confidence index. Pension withdrawals have increased by 20 per cent compared to 2023, as people struggle with rising living costs.
The research also revealed a significant gap between expectations and reality, with most people expecting to need £20,000-£30,000 annually for retirement, while the Pensions and Lifetime Savings Association suggests £43,100 is needed for a comfortable retirement.
The situation is particularly concerning as many Britons are already heading towards retirement with insufficient savings.
Those reaching pension age with modest defined contribution pensions might be forced to use their retirement savings to clear outstanding mortgages, leaving them with very low retirement income.
Even those who manage to pay off their mortgage by retirement age may miss out on crucial saving years, as Webb notes: “If the mortgage runs up to retirement, those mortgage-free later-life working years to top up the pension may never happen.”
The broader retirement savings crisis is highlighted by research showing more than a million people aged 45 and over have no cash savings whatsoever.
Almost three in five over-45s have less than £1,000 in savings, according to Fair4All Finance.
LATEST DEVELOPMENTS:
The situation is particularly challenging for those still renting or paying mortgages in retirement, despite the PLSA suggesting £43,100 a year is needed for a comfortable retirement.
Diane Burridge of Fair4All Finance said: “For many older people, the cost-of-living crisis could have a permanent impact on their financial stability and mean millions become retirees in name only.”
Three in five over-45s currently have at least one outstanding debt, further complicating their retirement prospects.
