Some sacrifice pension contributions to clear mortgage debt
Homeowners over the age of 55 are cutting back on spending as they aim to be mortgage-free before retirement, according to new research from equity release adviser Key Later Life Finance.
The study revealed that nearly 57% of those surveyed are making sacrifices in the lead-up to retirement to avoid carrying mortgage debt into their post-work years. General spending and leisure activities are the main areas where cutbacks are happening, with around 31% of respondents reducing expenditure in these categories.
However, not all over-55s are on track to pay off their mortgages before retirement. Nearly one in five (18%) said they would only be mortgage-free because they plan to delay retirement, while 14% admitted they are cutting back on pension contributions to clear their mortgage debt.
Industry data suggests the number of people paying mortgages into retirement is likely to increase. Analysis of Financial Conduct Authority (FCA) figures shows a 29% rise in first-time buyers in their 50s between 2018 and 2022. Meanwhile, UK Finance data indicates that over 60% of mainstream mortgages now extend beyond expected retirement ages, up from 20% two decades ago.
Key attributes these financial pressures to factors such as the rising cost-of-living and the need to save for retirement. The firm pointed to growing demand for products like lifetime mortgages, payment term lifetime mortgages, and retirement interest only (RIO) mortgages as potential solutions for older homeowners.
For those unable to clear their mortgages by retirement, the situation could persist for years. Key’s research found that 70% of homeowners who still expect to have mortgage debt anticipate making payments for at least two years into retirement. Only 13% expect to be mortgage-free within the first year.
The cost-of-living crisis is the primary factor preventing over-55s from paying off their mortgages, with 50% of respondents citing it as the main issue. Additionally, 30% pointed to pay cuts as a contributing factor.
While there is increasing awareness of later life lending options, uptake remains low. Approximately 44% of respondents are aware of products like equity release and RIO mortgages, but just 11% said they plan to use them.
Key has highlighted the importance of specialist advice in navigating these options, stressing that products such as lifetime mortgages and RIO mortgages could provide more flexible solutions for homeowners approaching retirement.
“Paying mortgages into retirement is clearly a growing issue with increasing numbers of homeowners expecting to still be making monthly repayments after they stop work,” said Chris Bibby (pictured), managing director at Key.
“That might sound worrying, but potentially a bigger worry is the sacrifices that people are making to ensure they are mortgage-free by the time retire which can include not saving into their pension and delaying retirement.
“That is very concerning and highlights the need for later life lending solutions which can provide better outcomes for over-55s with mortgages. There are more flexible ways to manage money in the run-up to retirement and to achieve a better balance. Over-55s should seek specialist advice on the growing number of options available which could help them to have the retirement they want.”
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