Borrowing Into Retirement

The Insurance giant Prudential recently carried out research which found that 25% of 2017s retirees will retire in debt. This is at its highest level for seven years.

These pensioners will on average owe debts of £24,300 costing about £224 a month. Most will take around 3 ½ years to pay them off, but around 7% will quite simply never pay them off.

About ¼ of all of these debts are due to mortgages, which at retirement have still not been paid off. There are a couple of reasons for this, the main one being that borrowers took interest only mortgages out in the 80s with endowment policies which were intended to repay the loan at maturity. Lots of these endowments got “surrendered” early on and no other plans were made to repay the capital.

The other reason is a simple one of affordability. With house prices being so high, borrowers often opt for longer terms on their mortgages in order to keep the monthly costs down, which means the terms creep into their retirement.

It’s all very well telling your lender that you intent to work until age 70, but often it’s the employer who decides if they want you to continue in the workplace. Fact is even if people do continue to work, they often go part time or into a less demanding (and therefore lesser paid) position.

For most people the move from work to retirement sees them having to cope with a considerable drop in their income. This is hard to take into account 20 years in advance and terms as well as interest rates therefore need to be carefully reviewed throughout the whole term of the loan.

My advice to everyone with a mortgage is to check the date it finishes, NOW to be sure that there is a plan in place to repay it. If you are able to make overpayments to reduce the term, then that’s a win / win whenever your mortgage is due to finish.

To speak to a mortgage adviser, contact us on 01628 507477.

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