The generation of homeowners facing a retirement crisis

A generation of homeowners face a retirement crisis as tens of thousands will end up paying off their mortgages after they give up work.

Data from the Bank of England shows two in five home loans issued in the second quarter of last year will run past the age at which the owners retire. It is up from three in 10 at the end of 2021.

It risks putting many retirement plans in jeopardy, with elderly Britons forced to keep working until the debt is paid off.

Former pensions minister, Sir Steve Webb, now a partner at LCP, warned that mortgage lending past the pension age had become “ an entrenched feature of the market”.

LCP, who analysed the data, estimated that more than a million mortgages had been issued in the last three years which ran past pension age.

The research found that the bulk of homeowners likely to have mortgage debt in their retirement were aged 40-49, with more than 100,000 new deals taken out in the last three years.

The firm said there had been a 30pc increase in the number of those under 40 taking out mortgages expected to run into retirement.

Sir Steve Webb said: “There is increasing evidence that taking out a mortgage which runs past pension age is an entrenched feature of the mortgage market rather than a temporary blip.

“This has profound implications for retirement planning, as it is likely to mean that savers may end up using up already inadequate pension pots to clear a mortgage balance.”

Alice Haine, of wealth manager Bestinvest by Evelyn Partners, said that the take-up of longer-term mortgages had been on the rise since the era of cheap money ended abruptly in December 2021 when the Bank of England began its rapid rate-hiking cycle in a bid to curb inflation.

Ms Haine said: “Since then, with borrowing costs quickly accelerating, increasing numbers of people turned to 30-, 35- or even 40-year mortgages to keep repayments in check.

“While a typical mortgage term is 25 years, long-term loans became increasingly sought after as buyers grappled with affordability challenges.”

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warned that housing costs were a “hidden horror at the heart of retirement planning,” adding that the retirement income standards set out by the Pensions and Lifetime Savings Association did not take mortgage costs into account.

She added: “Not only are we seeing longer mortgage terms, but also people getting on the housing ladder later and this all means they need to account for housing costs stretching into their retirement years.

“Given recent higher mortgage rates have pushed people’s day-to-day spending ever higher, having to try and find the extra money to put into a pension is going to be an extra squeeze that many people are going to struggle to manage.”

Story Continues