Homeowners taking out “ultra-long” mortgages to get on the property ladder face falling victim to a looming pensions crisis, experts have warned.
More than two fifths of borrowers are now taking out mortgages that will not be paid off until past the current state pension age of 66. This is up from less than a third (31pc) in 2021 when interest rates were at record lows, figures show.
The number of home buyers under 30 taking out these mortgages more than doubled over this period – the steepest rise of any age group.
It has fuelled fears that homeowners, particularly millennial first-time buyers, may be forced to raid pension pots to afford mortgage payments later in life.
Sir Steve Webb, a former pensions minister, now of pensions consultancy LCP, said: “The huge number of mortgages which run past the state pension age is shocking. The challenge of getting on the housing ladder is forcing large numbers of young home buyers to gamble with their retirement prospects by taking on ultra-long mortgages.
“We already know that millions of people are not saving enough for their retirement, and if some of that limited retirement saving has to be used to clear a mortgage balance at retirement they will be at even greater risk of poverty in old age.
“Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests.”
Mortgages with longer term lengths have grown in popularity as interest rates have risen, because the longer term leaves buyers with lower monthly repayments.
The average mortgage term for first-time buyers in Britain is now 30.8 years, up from 27.5 in 2014, according to separate figures from UK Finance, the banking trade body.
The rise has been driven in part by young people struggling to get on the housing ladder. In 2020, 11pc of under-30s in London who took out a mortgage did so with a term of 35 years or more. By 2023 this figure had risen to 27pc. Some banks now offer mortgages with terms of up to 40 years.
In the last three months of 2023, 3,676 homeowners under 30 took out mortgages that will run into retirement, a 139pc increase from 2021, according to data obtained from the Bank of England via a Freedom of Information request.
For homeowners aged 30 to 39, the figure rose by 29pc to 30,943 over this period. The number declined in all other age groups.
The Bank of England’s Financial Policy Committee has previously warned that a rapid rise in longer term home loans above 30 years risked leaving households more vulnerable to debt shocks, and of debt being pushed into old age.
Lenders are becoming increasingly wary about people borrowing into retirement. In March, Halifax imposed a new 70-year age limit on thousands of homebuyers as banks seek to rein in risky mortgage lending.
Experts have warned that many workers have not built up sufficient private savings to help fund their desired retirement.
Around 3.5 million private sector employees do not pay anything into a pension in a given year, according to the Institute for Fiscal Studies.
Source Agencies
