The ever increasing cost of living is eclipsing thousands of people’s prospects of retiring completely debt-free, with over 100,000 homeowners aged 65 and over still struggling to pay off their mortgages.
Equity release lender, more 2 Life, who compiled the research, believes the issue is a result of changes to traditional working patterns, as well as the average age of a first-time buyer rising to 35.
Of course, as well as impeding many people’s ability to retire debt and stress-free, outstanding mortgage debt later in life can pose financial risks.
Despite best intentions, some people may not be able to continue to receive a regular income through working full-time, for example due to health issues, impacting upon their ability to meet monthly repayments.
Meeting monthly mortgage repayments whilst income takes a hit during retirement years can also impact on day-to-day living costs such as food and household bills.
Stephen Lowe, head of external affairs at Just Retirement, said: “Some people will not be able to continue working and they may not have the capacity to do so, particularly if they are in roles that require heavy labour or lifting.
“But many people will have to extend their working lives because they will not be able to afford to not work. We are seeing people who are taking on part-time roles as a way to top up their income.”
Additional research released by the Council of Mortgage Lenders (CML) has also warned that homeowners approaching their retirement years with interest-only mortgages face a potential ‘mortgage time bomb’.
Millions of interest-only mortgages were sold, prior to the financial crisis, to borrowers looking to pay off just the interest, not the capital. Lower monthly repayments, compared to being on a repayment deal, also meant many borrowers opted into these mortgages in order to borrow a larger amount, in some cases more than they could actually afford.
Poorly performing repayment vehicles, such as endowments, which run alongside a mortgage to cover the cost of the repayment upon reaching retirement, are expected to impact massively on millions of borrowers.
Returns on endowments, in particular, are significantly lower compared to a few years ago when homeowners signed up to the policies. In fact, the Financial Conduct Authority (FCA) predicts that 150,000 borrowers will see their interest-only mortgages mature every year until 2020, of which 60,000 will extend the term.
Shockingly, the regulator anticipates 42,000 of the extended term interest-only mortgages to be held by people aged over 65, of which a great deal are in negative equity.
Even more worrying is the fact that around 37,000 borrowers aged over 60 have no repayment plan in place to cover the impending mortgage costs.
There is a potential mortgage time bomb ticking, with pensioners paying home loans way past traditional retirement ages. Some can afford to pay off their mortgages, but many will face income shocks and could really struggle if they still need to pay off a home loan as well as paying for the basics.
The issues facing millions of people approaching or already in their retirement years are widely believed to be behind a spike in the number of people seeking retirement advice and the sales of equity release plans.
If you are concerned about how you are going to repay your mortgage you should take action sooner rather than later. There may be many options available to you if you act in time. Some of the options include converting your mortgage to capital and interest, extending the term, switching to a new lender and type of mortgage or refinancing to a different type of borrowing.
Of course, that doesn’t mean that it will automatically be right for you, as there can be more suitable alternatives. The key is to discuss your options with an equity release specialist adviser who will explain all your options and allow you to make an informed choice. I recommend you involve your family in the decision and attend meetings with one or more of the family members present. If you and any of your family members want to find out more about using your home as capital, please contact me on 01204 884545. Alternatively, click here to fill in our contact form and we will be in touch.
Equity released from your home will be secured against it.