1 million Brits warned they’re ‘gambling’ with their mortgage choices

Around a million young Brits are risking their future golden years by signing up for mortgages that extend beyond the state pension age, according to a former pensions minister.

Sir Steve Webb, now a partner at LCP (Lane Clark & Peacock) and ex-Liberal Democrat MP who served during the Coalition Government, has raised the alarm over the “shocking” tally of mortgage agreements that don’t wrap up until after the state pension kicks in.

New data obtained through a Freedom of Information request from the Bank of England reveals that 42% of new mortgages in the final quarter of 2023 were set to continue past the state pension age.

Read more: HMRC message to millions

Comparatively, in the same timeframe, 38% of fresh mortgage arrangements were scheduled to conclude after the age of 66, with this figure standing at 32% in the fourth quarter of 2021. Sir Webb points out that based on these stats, over the past three years, one million new mortgages have been granted with end dates that overshoot the state pension age.

He commented: “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.”

During Q4 of 2023, the group of homebuyers aged between 30 and 39 took out 30,943 new mortgages that would last beyond the state pension age, while those aged 40 to 49 secured 32,305 such deals.

Young borrowers under 30 accounted for 3,676 of these mortgages, while those aged 50 to 59 made up 18,854. Meanwhile, 60 to 69 year olds took out 4,955 mortgages and people aged 70 and above secured 661 deals.

Sir Steve highlighted that many Brits may struggle to pay off a mortgage once they retire, potentially dipping into their pension savings to clear their mortgage debt, leaving them with less money in their later years.

The retirement expert pointed out that even if mortgage deals extend to pension age, it prevents Brits nearing retirement from enjoying a period of being mortgage-free and having the opportunity to increase their pension savings.

Last autumn, the Bank of England’s Financial Policy Committee (FPC) disclosed that since the first quarter of 2021, there has been an eight percentage point rise in new mortgage lending with a term of 35 years or more.

By the second quarter of 2023, these long-term mortgages constituted 12 per cent of new deals, with the FPC warning that they could heighten debt burdens on homeowners over time.

Financial information website Moneyfacts reported that the average two-year fixed homeowner mortgage rate on Friday was 5.94 per cent, a slight increase from 5.93 per cent on Thursday.

Property firm Savills recently predicted that property values across the UK are set to rise by an average of 21.6 per cent by the end of 2028.

Karina Hutchins, UK Finance’s principal for mortgage policy, stated: “The proportion of longer-term mortgages has been increasing in recent years as buyers to look for ways to stretch their affordability.”

“When reviewing new mortgage applications, lenders will act within the responsible lending rules set by the Financial Conduct Authority and carefully consider whether the borrower will be able to afford their mortgage in the future.”