Steve Webb, partner at pension consultant LCP and former minister of pensions, said the number of mortgages running into state pension age was “shocking”.

LCP obtained data supplied by the Financial Conduct Authority (FCA) to the Bank of England (BoE) that showed that more than a million people took out new mortgages in the last three years that would not be paid off by the time they reached the pension age.

It revealed that people under 40 made up the fastest growing group of people taking mortgages into retirement. It also showed that many of these borrowers were first-time buyers.

The data showed that, in Q4 2021, there were 88,933 new mortgages issued that ran past the state pension age, which accounted for 31% of all new mortgages.

In the final quarter of 2022, 113,916 new mortgage terms went past retirement age and accounted for 38% of new mortgages in that period.

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By Q4 2023, this had risen to a share of 42% of all new mortgages, representing 91,394 mortgages.

LCP said there was a risk people would “raid their pension savings” to pay for their mortgages if they could no longer afford payments, leaving them with less to live on in older age.

The firm multiplied figures by four to conclude this amounted to more than one million new mortgages in the last three years that went past the state pension age.

 

Rise in younger borrowers on longer mortgage terms

LCP also looked at the increase in people taking out longer mortgage terms that ran into retirement by age group from 2021 to 2023.

It found there was a 139% rise among the under-30s, with 3,676 taking out such mortgage terms in Q4 last year.

There was a 29% increase among people aged between 30 and 39 at 30,943. For people aged 40-49, this fell by 4% since 2021 to 32,305.

Above this age group, fewer people were found to have taken mortgages that went past retirement than in 2021.

LCP said this was seen among younger people due to affordability challenges when getting onto the housing ladder.

Separate data from the BoE showed the share of people in their 30s taking mortgage terms into retirement had risen from 23% to 39%.

LCP said that, as this was unlikely to be the last mortgage for someone in their 30s, particularly if they were a first-time buyer, the risk to their retirement income depended on what happened over their career and if they could shorten the term.

The firm said that, previously, people paid their mortgage off before retiring, then used their final years of work to boost their pension pot. However, this shift in borrowing behaviour could impact this.

LCP also noted that mortgage lenders had “little certainty” over the future pension income of someone in their 30s, so could not know if they would have enough money to pay off their mortgage.

Additionally, some people leave the labour market before reaching the state pension age, which could put them under financial pressure.

Webb said: “The huge number of mortgages [that] run past state pension age is shocking. The challenge of getting on the housing ladder is forcing large numbers of young homebuyers to gamble with their retirement prospects by taking on ultra-long mortgages.

“We already know that millions of people are not saving enough for their retirement, and if some of that limited retirement saving has to be used to clear a mortgage balance at retirement, they will be at even greater risk of poverty in old age.”

He added: “Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests”.

In January, it was reported that half of Gen X fear their inability to clear mortgage debt by the time they reach pension age.