Major Mortgage Hike Hits Over-55s Hard

Nearly half of the over-55 demographic in the UK who currently hold mortgages are preparing themselves for a significant hike in their monthly payments as their fixed-rate mortgage deals come to an end. According to recent research conducted by Key Later Life Finance, a leading equity release adviser, approximately 47% of these homeowners anticipate their monthly repayments to surge by an average of £400, equating to an annual increase close to £5,000. The uncertainty surrounding future payments plagues nearly a third (30%) of this group, contributing to an atmosphere of financial insecurity.

Fears of Falling Into Arrears

As many over-55s approach retirement, the potential for financial strain increases. The research highlights a concerning statistic: nearly one in eight (13%) fear they might fall behind on their mortgage payments. With the prevailing market rates for two-year and three-year fixed mortgages standing at 4.54% and 4.49% respectively, those transitioning from lower rates (around 2%) are facing a daunting adjustment.

Innovations in Mortgage Products for Later Life

In response to these challenges, Key has introduced several new mortgage products tailored for older homeowners. The Payment Term Lifetime Mortgage (PTLTM) is an example, designed specifically to alleviate the burden of increased repayments. This mortgage option allows for partial monthly interest payments up until the oldest applicant reaches 66 years old, making it a more manageable alternative compared to traditional residential or retirement interest-only mortgages.

Moreover, the recently launched Interest Reward Lifetime Mortgage offers an innovative approach by rewarding customers with lower interest rates when they commit to regular repayments. This can significantly reduce the total cost of borrowing when compared to standard lifetime mortgages.

Growing Awareness and Interest in Later Life Lending Options

Key’s research further reveals that awareness of later life lending options is on the rise. About 44% of over-55 homeowners are well-informed about these alternatives, with 36% expressing interest in products like PLTMs, and 6% being very interested. The evolving later life lending market offers a suite of new solutions, contrasting sharply with traditional remortgaging or shifting to standard variable rates (SVR).

On average, over-55s are spending £700 per month on mortgage payments, which accounts for about 20% of their monthly expenditures. This statistic underscores the financial pressures faced by older homeowners, especially amidst the cost-of-living crisis. A significant portion (15%) spend 30% or more of their monthly income on mortgage repayments, and some (11%) have monthly payments exceeding £1,500.

Despite these challenges, over-55s are proactively seeking ways to manage their financial burden. Approximately 20% have consulted financial advisors to explore options for reducing their mortgage repayments, and about 25% have engaged with their current lenders to discuss possible adjustments.

Making Sacrifices and Planning Ahead

Many in this age group are also making considerable sacrifices to ensure their mortgages are paid off before retirement. A majority (57%) of those expecting rate increases have already reduced their spending, and 18% have extended their working years beyond their initial retirement plans.

Chris Bibby, Managing Director at Key, emphasises the impact of these rate hikes: “Over-55 homeowners at the end of fixed-rate deals are facing substantial increases which will have a major impact on their finances… With homeowners already spending 20% of their income on mortgage repayments, this will significantly affect their budgeting, particularly as they also try to prioritise pension savings. For many, it will be impossible, and something will have to give.”

He strongly advises over-55s to seek specialist financial advice to deal with the rapidly evolving later life lending market and uncover potentially advantageous options that mainstream lenders might not offer.