First-time buyers warned they may have to use pension to pay off home

Person calculating their mortgage
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Prospective homeowners and people buying their first property now are being urged to consider a major financial liability that previous generations have very rarely had to consider. And it's a sobering one - having to use their pension to pay off their first home.

Recent analysis revealed more people are still making mortgage repayments after retiring as they take on loans lasting upwards of 30 years, with the average being 31 years according to UK Finance data. These lengthy terms are in order to help people get on the property ladder with more affordable monthly repayments.

However, a 35-year mortgage will also guarantee anyone currently above the age of 31 buying their first home will be paying it off after they reach the state pension age, likely meaning they will have to budget for mortgage repayments in their pension. And with the data revealing that the average age of the first-time buyer is now 33 means this may well be a reality for countless homeowners.

According to Chris Sykes, associate director at Capital Finance, longer mortgage terms aren’t becoming more popular just because of the reduced monthly repayments but also as more people extend their terms in the hopes the market will turn in their favour.

He explained to Mail Online: “In the current higher rate environment, many individuals likely hope to extend their terms now and then refinance at a more competitive rate in the future.” He also advised that those with lengthy mortgage terms try to overpay their monthly payments to bring down the mortgage faster and save themselves some dosh on the interest over the long term.

Chris explained: “Even a small monthly overpayment of £30 - just £1 a day - can pay off the mortgage one year and five months earlier, and save £12,486 in interest.” Mojo Mortgages found that first-time buyers in London in particular will become mortgage free, on average, a year after reaching state pension age at 67.

While those in the West Midlands and South East are cutting it close at 64 and 65, the research also found that buyers in Wales are typically the youngest homeowners to pay off their mortgage completely at average age of 59.

John Fraser-Tucker, head of mortgages at Mojo Mortgages, shared his concerns and warnings for property hunters. He said: “While longer mortgage terms can provide some short-term relief in the form of lower mortgage payments, they come at the cost of significantly higher overall interest charges over the life of the loan.”

Although the experts are raising the red flags now, many people who are currently retired are still grappling with their mortgage repayments. According to life insurance company SunLife, more than 500,000 retirees across the UK still have ongoing mortgages with the average remaining amount sitting at £33,627 which could wager out to a monthly payment of £635.

Mark Screeton, chief executive at SunLife, highlighted that this discrepancy between pension income and mortgage outgoings means many retired households are “cash poor and property rich”.