While the majority of 40 to 70 year olds with mortgages tend to take a more traditional approach to managing their mortgage – either making monthly repayments until it is paid off (58%) or making lump sum payments in addition to monthly contributions (22%) – some have other ideas.
One in ten (389,483) intend to use their tax free pension lump sum to repay the outstanding balance on their mortgage and 5% (199,069) plan to use their pension to repay the outstanding balance on their mortgage.
In addition, 7% (268,311) claim to have savings or investments set aside to meet this cost which suggests that they may hold one of the estimated 2.2 million interest only mortgages outstanding on lenders books.
Worryingly, 6% (225,035) will use an inheritance to repay their mortgage and 3% (112,517) will take in a lodger to help them meet this cost – neither of which are guaranteed sources of finance.
Mark Stopard, head of product development at Partnership, said: “It is worrying to see that over half a million people in England plan to use all or part of their pension to repay their mortgage.
“This suggests that the number of people who actually need to do this is likely to be far higher as unexpected events such as redundancy, illness or family financial emergencies cause issues.
“While it is natural for people to want to retire debt-free, the purpose of these savings is ideally to provide an income for their retirement – which can last up to 30 years or more.
“Although the state pension will provide a very basic safety net, it is unlikely to be sufficient for people to have as comfortable a retirement as they might wish.
“This research clearly highlights that people need to focus on repaying their mortgage as early as possible and avoid traps such as remortgaging for the full period each time they take out a new deal.
“Even those who are currently retiring have options such as working longer, downsizing or taking out an equity release plan – all options that will help to keep their pension funds intact.”