There has been a significant increase in homeowners over the age of 50 looking to refinance their mortgage for a period that may continue into retirement.
A longer mortgage term can make monthly payments more affordable, but it could mean the homeowner pays more in interest in the long run.
New figures show that the number of Brits aged 50 and over taking out a 21-25 year mortgage in the first quarter of 2024 rose by 83% compared to the same period last year.
The average debt amount for people aged 50 and over who were considering refinancing their mortgage in the first quarter of 2024 was £217,065.
But data from Legal & General Mortgage Services’ Ignite platform found that average loan sizes have risen sharply, especially among refinancers aged 51 to 55.
This represents an 18.9 per cent increase from £197,343 in Q1 2023 to £234,716 in Q1 2024.
Average mortgage refinance amounts are increasing overall, which Legal & General said reflects the affordability challenges facing buyers across the housing sector.
In Q1 2023, the average loan amount searched by advisers on behalf of all remortgage customers was £221,625. This increased to £224,129 in Q1 2024.
Kevin Roberts, managing director at Legal & General Mortgage Services, said: “Our data reveals that while how and when people retire appears to be changing, we’ve seen a significant increase in homeowners aged 50 and over looking to refinance their mortgage for a period that is likely to continue into retirement.”
“Given the severe and volatile interest rate environment, it was probably inevitable that we would see a significant increase in mortgage refinancing requests.
“If interest rates had remained low, many homeowners might have stayed put and renewed their contracts with their existing lenders.”
But he said the company was carefully considering its options to ensure that in a new competitive market, more people can “take advantage of the best possible rates”.
Roberts said professional advisors can use their experience and the tools they have access to to help borrowers find the right deal.
A long-term mortgage that lasts into retirement can have a major impact on your financial planning for the rest of your life.
While the lower monthly payments may be attractive, there are concerns about having a long-term mortgage:
- The increased costs of extending repayment periods can negatively impact retirement savings and delay retirement.
- Leverage can magnify market volatility, increasing financial risks and potentially resulting in debt problems or investment management difficulties.
- When variable income doesn’t match up with fixed mortgage payments, it can create financial stress that undermines your long-term well-being.
Sir Steve Webb, a former pensions minister and now a partner at LCP (Lane, Clarke & Peacock), warned earlier this year that some home buyers may be gambling their retirement prospects by taking out ultra-long mortgages.
He accessed Freedom of Information Act (FOI) data provided by the Bank of England which showed that 42% of new mortgages in the fourth quarter of 2023 (91,394) were for periods above state pension age.
Emily Shepherd, chief executive of the Financial Conduct Authority (FCA), said in a previous speech: “Mortgage repayment tenors are getting longer and the proportion of mortgages maturing around the national retirement age is increasing. The average age at maturity for first-time home buyers has risen from 56 in 2005 to 65 now.”
“The proportion of mortgage borrowers over 67 currently makes up less than 2% of all loans. By 2040 that will rise to 5% and by 2050 it will be almost 10%. Lending to retirees is moving from a niche sector to the norm.”
A personal finance expert,Alpha Analysis “People approaching retirement should consider the possibility of a mortgage.”
“Housing expenditure can be kept in check by carefully considering interest-only terms, extra payments or mortgage extensions.
“You could also consider downsizing, refinancing or seeking other assistance to align your housing plans with the rest of your retirement plans.”
