When you think of retirement, mortgage payments probably aren’t part of your plans. In the past people had paid off their mortgage before they hit retirement and didn’t have to factor those hefty monthly payments into their pension plans. But, times are changing.
Soaring house prices have outpaced wage growth for years now. This has meant that the age we buy our first home has gradually been rising. The average first-time buyer is now 37, according to the Mortgage Advice Bureau.
As people struggle to get on to the property ladder, or move up the rungs, we are also increasingly taking out longer mortgages. Gone are the days of the 25-year mortgage, many people now opt for up to 35-year terms in order to make their repayments more affordable.
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As a result more than a third of mortgages taken out today will end when the borrower is over 65, according to research by the Council of Mortgage Lenders. This means many of us are facing having to fund mortgage repayments out of our pension pots.
Another problem is we could also be trapped on bad mortgage deals. This is because banks and building societies aren’t yet reacting to the ageing population when it comes to mortgages. Less than 1 per cent of new mortgage lending is to over 65s, according to the Council of Mortgage Lenders. Many lenders will not grant mortgages to people who would be over 70 or 75 when the mortgage term ends.
These out-dated age limits mean that many people are trapped from the age of around 55 upwards, unable to remortgage as no-one will lend to someone of their age.
“We are still hearing from people who are stuck in uncompetitive mortgages who are unable to move to a better deal simply because of an arbitrary age limit,” says a spokesperson for Saga.
“It’s simply wrong that on the one hand people are having to adapt their plans to work for longer, but on the other hand the mortgage lenders are failing to adapt to this significant economic shift. Financial institutions need to change. Lending decisions should not be based on somebody celebrating a birthday; it should be about an individual’s ability to pay.”
The good news is mortgage lenders are starting to listen. The Building Society Association (BSA) announced last week that the sector was committed to reviewing maximum age limits on mortgages.
“As the average age of a first-time buyer continues to increase, borrowing into retirement is becoming increasingly commonplace, rather than a niche form of lending,” says Paul Broadhead, the BSA’s head of mortgage policy.
“The time is right to review lending policies, examine how advice is provided and to work closely with a range of organisations across different sectors to ensure that lenders are equipped with the appropriate tools to respond to the rapidly changing demographics across the UK.”
