Are mortgages in retirement an issue now?
It seems not. Currently, only 2% of mortgage holders are retired*. Qualitatively (the numbers are too small to quote any stats) almost all of these are managing their mortgage payments well.
Will this be a bigger issue in future?
Yes. Another 12% of mortgage holders said they expected still to have a mortgage when they were retired, up from 8% in 2013. Around 60% of these expect their mortgage payments to be a ‘struggle’ in retirement. Having a mortgage into retirement will therefore mostly be a forced event, not a positive choice.
Are interest-only mortgages to blame?
Partly. Among those who expected to have a mortgage when retired, about a third had interest-only deals, twice the national norm. Difficulty clearing interest-only debt is therefore part of the problem.
So what else plays a part?
Circumstances and earlier mortgage decisions. One quarter of those who expect to have a mortgage in retirement are already struggling to keep up with their mortgage payments – that is well over twice the national norm.
Driving this is the size and pay rate of the mortgage; their average mortgage size is 10% above the national norm while their typical monthly mortgage payment is 20% above the norm. This is despite opting for somewhat longer terms than average when opening their mortgage to keep monthly costs down. And now, most feel it would be difficult to change their mortgage deal, should they wish to manage their costs down.
Does this mean that lenders should stop offering new mortgages to later life borrowers?
Not based on our data, no. There is very little overlap between potential applicants for new mortgages and those who expect still to have a mortgage when they retire. Most new lending to later life borrowers involves terms of under 15 years, which helps to ensure that the mortgage is paid off before retirement.
*All statistics taken from BDRC’s latest Mortgage Achilles study, completed in November 2014.