The Sunday Times
Saturday February 23, 2019
Zoopla

The financial regulator warned the situation could impact their pension saving.

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  • Four out of 10 first-time buyers who took out a mortgage in 2017 will still be repaying it when they retire.

    The proportion of homeowners who will not have paid off their mortgage by retirement has nearly doubled since 2012, when only 22% of borrowers were in this position.

    More than a third of all mortgages now have terms that are longer than 30 years, according to regulator the Financial Conduct Authority.

    It warned that the situation could impact people’s ability to save towards retirement. 

    Why is this happening?

    The FCA attributed the rising number of first-time buyers who will still be repaying their mortgage into retirement on high house prices, particularly in London and the South East.

    Subdued earnings growth and increased household debt have also made it harder for people to save to get on to the property ladder.

    As a result, many people are delaying buying their first home until they are older.

    The regulator said this trend increased the likelihood of consumers borrowing into later life, particularly as mortgage terms and size continued to increase. 

    Who does it affect?

    First-time buyers are most likely to be opting for a mortgage term that continues beyond the age of 65 as they struggle to get on to the property ladder.

    The FCA said the percentage of 16 to 44 year-olds who owned a property had reduced significantly since 1981.

    But the situation is not limited to new homeowners, with nearly one in five home movers in 2017 also opting for a mortgage term of 30-plus years.

    What’s the background?

    Mortgage terms were traditionally for 25 years, but their length has been increasing, with some lenders now offering loans that spread over 40 years.

    The downside of borrowing over an extended period is that you pay considerably more in interest.

    For example, someone who borrowed £150,000 at 2.5% over 25 years would pay £93,750 in interest during the lifetime of their mortgage, but this sum would soar to £150,000 if the mortgage term stretched over 40 years.

    Despite this fact, longer term mortgages can still be worth considering.

    Tough affordability criteria, introduced under the Mortgage Market Review, mean for some people opting for a longer mortgage term is the only way they can qualify for a home loan.

    In many locations, it is also cheaper to buy a home than to rent one, so although homeowners may still be repaying their loan into retirement, they will have more disposable income during their working life to pay into a pension.

    Homeowners with longer mortgage terms could also consider making overpayments in order to pay off their loan earlier or remortgaging on to a shorter term once their income has increased.

    They also have the option of downsizing when they reach retirement if they have still not repaid their mortgage in full, as they are likely to have built up significant equity in their property by then. 

    Top 3 takeaways

    • Four out of 10 first-time buyers who took out a mortgage in 2017 will still be repaying it when they retire

    • More than a third of all mortgages now have terms that are longer than 30 years nearly doubled the level in 2012

    • The Financial Conduct Authority warned that the situation could impact people’s ability to save towards retirement 

     

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