The decision is increasing the number of homeowners who will still be paying back a mortgage in their 70s fourfold.
In 2022, borrowers with extended mortgages hit a high of 88,059 compared to 40,471 in 2018, figures released by the Financial Conduct Authority show.
Consequently, there are four times as many homeowners taking out mortgages that they will still be paying back when they are aged 70 years old or more.
In 2018, 3,035 people over the age of 41 took out a mortgage with a term of between 30 to 35 years. By 2022, this had risen to more than 12,000.
If a borrower aged 41 had a mortgage of £250,000 with a 35-year term on an interest rate of the per cent, the average rate for the past 20 years, they could expect to pay £962 monthly repayments or £11,544 over the year, according to Quilter.
The wealth manager added that while this figure may go up and down over the years depending on interest rate levels throughout their mortgage term, borrowers will need to be confident they can afford to make these repayments until the age of 76 using their retirement wealth.
The mortgage term figures, obtained by wealth manager Quilter through a Freedom of Information request, follow a sharp rise in mortgage rates driven up by the Bank of England’s increases to the base rate, a period of economic volatility caused by former Prime Minister Liz Truss’s disastrous mini Budget in September 2022 and stubbornly high inflation.
Since December 2021, when the Bank of England upped the base rate from 0.1 per cent to its current position of five per cent, the average two-year fixed rate at 85 per cent loan to value has increased from 1.71 per cent to 5.62 per cent, according to the Bank of England’s quoted rates series.
By stretching the mortgage term, borrowers can lower their monthly payments but will pay back more interest over the life of the loan.
Karen Noye, mortgage expert at Quilter: “For many people, to realise the dream of homeownership or to simply obtain an affordable mortgage they have had to increase the term of their mortgage. While this is not inherently wrong and can be a lifeline for people during this difficult time, it does have the potential to stretch people’s finances later in life particularly for those in their 40s.
“For anyone considering entering into a mortgage that will see them well into retirement, it is vital they think ahead and are aware of the potential risks. Many people under save for their retirement anyway without even taking into account the fact they will not be earning and need to pay for a mortgage as well as living costs.
“Similarly, while a mortgage term of 35 years or more can result in lower monthly repayments, you are likely to pay considerably more in interest over the course of your mortgage term.”
