Huge increase in young people 'gambling' on mortgages that expire in retirement

Couple celebrating moving day, mortgage, and relocation concept.
Many people are signing long-term mortgages just to get their foot on the housing ladder -Credit:Getty Images

The Bank of England has revealed figures showing a post-pandemic spike in desperate first-time buyers in their 30s signing "ultra-long" mortgages that they will still be paying off in retirement. This has raised fears that many will be left with less to live on in their later years.

The data was revealed following a Freedom of Information request by LCP pension consultant Steve Webb, who said the ever-worsening housing market for younger home buyers is forcing them to "gamble" their retirement. Since 2021, there has been a 30 per cent increase in people signing onto these extra-long mortgage terms.

Overall, 42 per cent of mortgages signed in the last part of 2023 will continue to be paid off after the homeowner retires and quits the workforce, either forcing them to take money out of their pension to pay off the remainder or take a large hit to their living standards. This rise has been fastest among young first-time buyers, who might otherwise not meet the affordability criteria for a mortgage.

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Steve Webb said: “The huge number of mortgages which run past state pension age is shocking. The challenge of getting on the housing ladder is forcing large numbers of young home buyers to gamble with their retirement prospects by taking on ultra-long mortgages.

"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.”

The long-term effects of this shift in the market could change how people behave in their pre-retirement years, with more workers trying to pay off their house before they retire, rather than adding to their pension pots. It could also result in people defaulting on their mortgages, as a bank cannot accurately assess what someone's pension income will be thirty years before they claim it.