Data from the Bank of England, obtained by LCP partner and former pensions minister Steve Webb, reveals a significant shift in the mortgage market. In the second quarter of 2024, just over two in five new mortgages had terms extending beyond the borrower’s pension age.
This marks a notable increase from the end of 2021, when fewer than three in 10 new mortgages fell into this category. It is estimated that over one million new mortgages with terms stretching past retirement have been issued since late 2021. Key’s Managing Director, Chris Bibby said:
“The long-held assumption that mortgage debt will be paid down before retirement is clearly no longer relevant or realistic for a significant proportion of the population. With the FCA themselves, acknowledging mortgage debt in retirement is no longer a niche but a norm.
What is abundantly clear is that so many people struggle to save meaningfully into a pension while paying a mortgage. It’s a fast-emerging reality that in retirement, many in later life have limited retirement funds and significant mortgage debt.
It’s a financial truth that requires a new approach to retirement planning and different thinking around mortgage debt. The solution has to include viewing the home as an asset to help fund later life.”
Webb highlighted the trend’s growing prominence, calling it an “entrenched feature” of the mortgage market rather than a temporary anomaly. He noted that such long mortgage terms could force retirees to dip into already inadequate pension savings to pay off remaining balances. Bibbly added:
“This changing need is reflected in some of the recent product innovations in the later life lending market, where products are looking to provide more flexible ways of balancing mortgage interest payments with other later life expenditure.
They include retirement interest only mortgages, term interest only mortgages and partial interest payment-term lifetime mortgages. In fact, there are now lifetime mortgages with no early redemption charges. These products also now need to move from being a niche to a norm and brought firmly into mainstream financial planning.
Advisers need to be aware of the changing needs of consumers and the product innovation in the later life lending market that better support customers and advisers’ Consumer Duty obligations.”
The past two years have seen the most rapid growth in this trend among younger borrowers. The number of under-40s taking out mortgages that will extend into their retirement years has surged by 30%.
Webb pointed to affordability challenges as a key factor behind the “exceptionally long mortgage terms”. Younger buyers, he suggested, may be stretching loan durations to manage higher interest rates and secure lower monthly payments.
He emphasised that financial planners and advisors must now account for these extended housing costs when helping individuals prepare for retirement, as the burden of mortgage repayments could undermine their ability to rely solely on their pension pots.
