The average UK homeowner is still paying down their mortgage past the chronilogical age of 75, according to the latest Tax Incentivised Savings Association (Tisa) and KPMG Savings Index, which provides a snapshot of the total savings held by British households.
New figures demonstrate that 55-64 year olds had lb36,500 left to pay on their mortgage, 64-75 year olds owed around lb11,400 on their own mortgage and people over 75 were still paying off mortgage debts of lb3,200.
The findings bring into question the long-held assumption that the mortgage will be repaid by the time you reach retirement, with many UK households now counting on their pensions to repay their mortgage.
Here, we explain why individuals are taking longer to repay their mortgages and take a look at retirement interest-only mortgages and also the other later-life borrowing possibilities.
Why could it be taking longer to repay a home loan?
The Tisa and KPMG Index revealed that the financial landscape is changing and having a direct effect on the ability of borrowers to pay off their mortgage debt.
Overall, first-time buyers are entering into the property market later and choosing longer-term mortgages. Which means that many are carrying mortgage debt into retirement and achieving to rely on their pensions to pay it off.
A transfer of the types of workplace pension schemes offered to employees, however, has effects on the amount of retirement income borrowers have – and therefore remarkable ability to pay off their mortgage.
The number of defined benefit (DB) pension schemes available to employees is in decline, especially for younger private sector workers. DB pension schemes are actually advantageous for workers because pension information mill obliged to meet a ‘pension promise’ and pay out a set fee of pension income when you retire, regardless of how your pension investment performed.
Defined contribution (DC) pension schemes, that are much more common these days, do not promise to pay out a set amount at retirement. Which means that the number you get depends on just how much you contribute to your pension and just how the fund itself performs.
Renny Biggins, retirement policy manager at Tisa, said: 'We've seen a genuine shift in pension provision in the past many years, with the private sector moving towards defined contribution schemes and people failing or not able to save appropriate amounts via other long-term saving vehicles.
'The fact is many people going to enter retirement have a sizeable chunk of their mortgage left to pay for. Although auto-enrolment is really a positive advance, it remains challenging for people in the united kingdom to develop sufficient retirement savings.'
Could retirement interest-only mortgages (RIOs) help?
Retirement interest-only mortgages (Rios) are made to help older borrowers who may find it difficult to get a standard residential mortgage.
They permit you to borrow against your property and only pay back the eye (and never the loan itself) each month. Some Rios carry terms, meaning you have to pay back the capital loan after a set number of years or when you reach a certain age, however with most deals you’ll only repay the main city when you sell your property, move into residential care or perish.
Rios can also be an option for everyone who is finding it hard to remortgage from the standard interest-only mortgage, including a large number of borrowers who took one out before the financial crash, when the deals were often sold to individuals without thoroughly checking whether they'd have the ability to repay the borrowed funds.
Some retirement interest-only mortgages permit you to repay some capital as well as interest. This can reduce the size of the loan with time, meaning that more of your property can be forwarded to all your family members.
New retirement interest-only mortgage deal launched this week
The Beverley Building Society has become the latest lender to launch a Rio mortgage, offering loans to people older than 55 who are receiving pension income.
The lender hasn’t set the absolute minimum income requirement and you can borrow as much as 3.Five times your earnings (or combined income, if you’re applying with another person).
Beverley Building Society's interest-only deal gives you a choice of overpaying by 10% of your mortgage's balance each year without incurring a penalty. Next there is a 2% early repayment charge.
Your property should be worth at least lb125,000 to use, and also the loan can be for anything between lb25,000 if you’re purchasing (or lb40,000 if you are remortgaging) and lb350,000, with a maximum loan to value (LTV) of 55%.
Your loan will be paid off through the sale of your house when you move into full-time care or pass away, if you don't remove a joint mortgage and the body else continues to live in the home and can pay the interest payments by themselves.
For more details about how these loans work and to learn about other deals on the market, take a look at our retirement interest-only mortgage guide.
How does equity release compare to RIOs?
Retirement interest-only mortgages share some similarities with equity release, as both allow you to borrow upon your property's value to access cash in retirement.
There are a couple of main types of equity release: lifetime mortgages and home reversion schemes.
Lifetime mortgages allow you to borrow some of your home's value, with interest accruing around the amount you’ve borrowed (as well as on the interest itself) over time. On the plus side, it's not necessary to pay anything back until you sell your house or perish, but around the downside, the quantity of interest owed can easily spiral and eat to your remaining equity.
Home reversion schemes permit you to sell a share of your house while living inside it.
The major drawback would be that the provider pays you much less than the share may be worth, but profit from the entire worth of the percentage that they own when the rentals are eventually sold (which usually happens when you progress into long-term care or pass away).