A Third of UK Homeowners May Still Have Mortgages After 65

A new study from financial services group LV= has revealed that around one-third of UK homeowners with mortgage loans expect to still be paying off their mortgages after they turn 65. This data comes from the LV= Wealth and Wellbeing Research Programme, which surveyed 4,000 UK adults. The findings also show that 10% of retirees found themselves still carrying mortgage debt when they retired, with the average amount owed being £38,000.

The Burden of Mortgage Debt in Retirement

According to LV=, many retirees are having to use their pension funds to pay off outstanding mortgage debt. This situation has raised concerns about the increasing number of individuals who may become trapped in “forever mortgages.”

The study found that 63% of retirees who had outstanding mortgage debt had to rely on their pension income to make payments. As mortgage costs have risen due to increasing interest rates, more homeowners are considering lifetime loans to manage the financial burden. In fact, the survey revealed that 28% of homeowners would consider a lifetime mortgage, while 3% already have an equity release loan.

Economic Conditions Impacting Decisions

The current economic climate is also playing a significant role in shaping homeowners’ decisions regarding lifetime mortgages. The study found that 31% of those who would consider a lifetime mortgage are more likely to do so because of the current economic conditions. This percentage rises to 45% for individuals with a household income of £100,000 or more.

Key Reassurances of Equity Release

The concept of equity release, whereby homeowners can unlock the value of their property to pay off their mortgage debt, offers certain reassurances. According to the survey, the key features that homeowners found reassuring about equity release include:

  • Downsize protection: 33% of respondents felt reassured by the option to downsize to a smaller property.
  • Transferability: 32% appreciated the ability to transfer their lifetime mortgage to another property if they decide to move home.
  • Reputable providers: 29% of respondents felt more confident when the lifetime mortgage was provided by a well-known financial services brand.
  • Fixed early repayment charges: 25% found fixed early repayment charges to be reassuring.

The Challenges Faced by Retirees

David Stevens, director of savings and retirement at LV=, highlighted the challenges facing both mortgage holders and retirees. He noted that, in the past three months alone, 300,000 mortgage holders have fallen behind on payments. Stevens mentioned that many people are on fixed-term mortgages that will end within the next 12 months, which could result in higher mortgage payments when they come to re-mortgage or switch to a variable rate.

Retirees, in particular, face difficult choices. Some may resort to drawing down money from their pension at unsustainable rates, increasing the risk of running out of money in the long run. To address this issue, equity release presents itself as an option for unlocking the value of their home to potentially pay down mortgage debt.

Stevens concluded by stating that the research reveals a growing pragmatism among those considering equity release as a means to achieve a more confident lifestyle in their later years.

It is important to note that the LV= Wealth and Wellbeing Research Programme is a long-term quarterly survey that collects data from 4,000 UK adults.