Ultra-long mortgages escalate among under-30s

Figures from the Bank of England have revealed hundreds of thousands of homeowners have taken out mortgages in the last few three years that they will be paying off into retirement.

Despite house prices coming down and the Bank of England talking about lowering interest rates, there is one group of people who will be bearing the brunt of the housing crisis well into their retirement years.

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Research that was obtained through Freedom of Information requests showcased that 42% of new mortgages in the fourth quarter of 2023 – or 91,394 – had terms going beyond the state pension age.

In the final quarter of last year, people aged 30 to 39 accounted for 30,943 new mortgages lasting beyond state pension age, while people aged 40 to 49 accounted for 32,305.

Those aged under 30 made up 3,676 of these mortgages.

During the same period in 2021, researchers found 31% of mortgages had the same end date, showcasing the increase in popularity for longer-term loans.

Against this backdrop, across the final quarters of all three years leading to 2023, almost 300,000 new mortgages were in this category.

Sir Steve Webb, ex-Liberal Democrat MP who is now a partner at the consultancy firm LCP, has voiced his concerns that younger people are taking out longer mortgage loans to manage costs, but these result in higher interest rates which mean they will be paying more in the long term.

‘The huge number of mortgages which run past state pension age is shocking,’ Sir Webb said. ‘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.’

Sir Webb added: ‘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.

‘Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests.’

Echoing a similar tone, Karina Hutchins, principal for mortgage policy at UK Finance, said that while longer mortgage loans can offer some short-term benefits, they will eventually have ‘less disposable income to put into their pension if the mortgage runs for its full term.’

Karina remarked: ‘We would encourage customers to speak to an independent mortgage adviser to discuss the best options available for their specific circumstances.’

Currently, it remains unclear how long this trend may last as it depends on whether mortgage rates drop and settle. Following the decision to keep interest rates at 5.25% on Thursday, Andrew Bailey, the Bank’s governor, said he remains ‘optimistic’ that things are moving ‘in the right direction’.  

Image: BrianPenny

More on this topic:

Interest rates set to remain at 14 year high

New compulsory purchase orders powers only beneficial ‘at first glance’


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