Having a mortgage that lasts into retirement has become more common as between April and June, 30,400 mortgages worth a total of £4.3 billion were agreed for borrowers ages over 55 and more than 50,000 were borrowers ages 70 or over, as reported by The Times.
Warwick, 70, and his wife Lynda, 52, wanted to switch the interest-only half of their £90,000 mortgage on their four-bedroom house in Devon to a repayment plan three years ago.
The couple have been married for 30 years and bought their house in August 2001. They were paying about £400 a month on their tracker mortgage, but wanted to make sure they could pay off their interest-only portion.
To keep their repayments manageable, they wanted to extend the seven years left on their term. Lynda was working in administration at a care home and Warwick, a former financial adviser and mortgage broker, had a pension and was running a gardening business. However, Lloyds wouldn’t offer him a loan. Warwick said:
“If you are a square peg in a round hole a lot of high street lenders can’t cope with it. We’d never defaulted on anything in our lives, but they couldn’t cope with the age difference and the fact that I was beyond retirement age, even though I was still working.”
After going back and fourth with Lloyds, in October 2020, in found a deal with the Family Building Society – a “five year fixed rate of 2.69% on a 20-year repayment mortgage”. Their monthly payments are £517 a month.
Keith Barber from Family Building Society said:
“What has happened over the last 15 years or so is that many more people are working for longer, perhaps driven by pensions that are not as good as they were for previous generations.
There has been a change in attitude to borrowing in retirement, with many seeing it as a way to achieve what they want. That can be to stay in a property they love for longer, to make up for lower than expected pensions, or to give money to children or grandchildren.”
Paul Broadhead from the Building Societies Association said that the state pension age has “gone up, people need to borrow for longer, and what’s the point of an age limit?”. He added:
“Someone with a good guaranteed pension could be a better borrower than a first-time buyer who might lose their job.”
What’s more, 48 banks and building societies, including Britain’s largest lender Halifax, will grant loans that stretch up to a borrower’s 80th birthday or later, according to the mortgage broker Trinity Financial.
Scott Taylor-Barr from Barnsdale Financial Management, a mortgage adviser, said:
“If you are still a way off retirement, say ten years plus, then the lender may only want proof that you are contributing to a pension, but once you get closer to retirement they will want detailed information about the pension and will only be accepting your post-retirement income.”
Despite this, The Times stated that a mortgage that extends into later life could mean that you need a bigger pension to cover your living expenses.
Becky O’Connor from the pension consolidation firm PensionBee said:
“What we are about to see is a seismic shift from a generation of retired people who, generally speaking, are sitting pretty, with relatively impressive final salary pensions and housing equity, to a generation of retired people with unreliable and generally lower incomes from less generous pension schemes, coupled with potentially higher housing costs.
Many of the new cohort will have bigger mortgage or rent outgoings when they reach retirement age simply because they had to overstretch to afford to buy or never managed it in the first place. This shift from comfortable and secure retirement incomes to more meagre and uncertain ones will happen steadily, but will have profound implications.”