- Figures that were described yesterday by the former Minister of Pensions as ‘truly extraordinary’
Four in ten mortgages are taken out by borrowers who will repay the loans even after retirement age, according to figures from the Bank of England.
It means tens of thousands of homebuyers have committed to making repayments into their late 60s to afford to get into the housing market or move to a larger property.
The figures were yesterday described as ‘truly extraordinary’ by former pensions minister Steve Webb, who said he was ‘genuinely shocked’.
Figures from the Bank show that almost 50 percent of the mortgages issued in the fourth quarter of last year had a term of thirty years or longer.
And in 40 percent of new mortgages, ‘borrowers will have exceeded the current state pension age at the end of the term of their mortgage’, which amounts to around 90,000 loans.
The Bank warned that this could affect the future ‘resilience’ of borrowers and lenders.
Tens of thousands of homebuyers have committed to making payments well into their 60s to afford to get into the housing market or move to a larger property.
Mr Webb, now a partner at pension advisers LCP, said: ‘Previously you might have assumed that a lender would want a mortgage to be paid off by the time someone had stopped earning and reached retirement age.
‘If it becomes the norm for a significant proportion of mortgages to continue until retirement age – and that is before further extensions during the life of the mortgage – this would be a profound change.’
He said mortgage lenders should “think very carefully about the wisdom of offering mortgages that are payable even if someone is no longer a breadwinner.”
The figures come as buyers face continued pressure from high interest rates and increases in the cost of living.
In England, the average cost of a home in 2023 was 8.3 times the average salary.
That’s up from 3.5 in 1997, but is down from 2021, when it peaked at 9.1.
Due to the lack of affordability, buyers are increasingly opting for mortgage agreements with a longer term.
In the past, a mortgage with a term of 25 years was seen as the norm. Data published this month by trade body UK Finance shows that 23 percent of first-time buyers take out a mortgage with a term of more than 35 years.
Lenders are also trying other ways to relax the criteria needed to buy a home, with Yorkshire Building Society launching a 99 per cent mortgage – meaning buyers can purchase a property with as little as a 1 per cent deposit.
In England, the average cost of a home in 2023 was 8.3 times the average salary
The Bank of England has assessed the trend towards longer-term mortgages in the latest update to its financial policy committee, which monitors risks to the financial system.
It said that while longer-term home lending had ‘eased affordability constraints for many borrowers’, it could also ‘affect the future resilience of borrowers and lenders’.
Mr Webb said: ‘While it can be very tempting to take out a long-term mortgage to make the repayments affordable, this can cause serious problems for the future.
‘Someone who retires and has a balance on their mortgage may… eventually cash in on pension pots to pay off their mortgage debt, but this could leave them with even less to live on in retirement.’