Outstanding Mortgages Common Among Retiring People

There was a time when people got mortgages at a young age and paid them off before they retired. But new figures from Prudential have revealed this is becoming less likely today.

The insurer has found a proportion of those retiring in 2017 will still have outstanding mortgage payments to make. Currently, 38% of retirees are still making payments on their mortgage. This is an increase of 5% over the figure noted last year. What’s more, given the current climate, there is every chance the figure will keep on rising.

Why has this happened?

Last year, it was said the average age of the first-time buyer had reached 30 years old. A rise in house prices and rents has led to a double-whammy of difficulties for many would-be home buyers looking to get their foot on the housing ladder. Higher rents mean there is less money to save towards a deposit each month.

Additionally, higher property prices mean people must save more to get enough together to fund their deposit. Hence the rise in age for a first-time buyer. And the later a person takes up a mortgage, the older they will be when it is finally paid off.

The knock-on effect from interest-only mortgages

A further concern is the number of interest-only mortgages that are set to mature this year. These were popular many years ago, and while investments were supposed to cover the original mortgage debt, in practice things have been very different. The Financial Conduct Authority estimates almost 50% of those with these mortgages may not be able to pay off the outstanding debt.

What’s more, they consider the period from 2017-18 to be the first of three periods when such mortgages will fall due in large numbers. This too could have a notable effect on the number of retirees who will still be meeting monthly mortgage payments.

25% will have unpaid debts when retiring this year

Overall debt looks to affect a quarter of those who are set to retire this year. Last year, the figure was said to be around one in five, or 20%. This too is a big jump in 12 months.

The average amount owed overall is around £24,300. Again, this represents an increase on the previous year, when the average stood at £18,800.

Could this fuel a rise in equity release plans?

Many properties will be worth far more than the outstanding mortgages held on them when people retire this year. In some cases, the solution to clearing a mortgage – especially regarding interest-only mortgages – will be to consider an equity release plan.

Others will take several years to clear their outstanding debts, whether these relate to mortgage debts or those held on credit cards. This latter source of debt was found to be a key issue among just over 50% of those who are now retired.

Clearly, the idea of retiring in a debt-free state today may not be as easy as it was many years ago.

Published on 12 May 2020

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