More than half a million retirees in the UK could still be burdened with mortgage debt according to a survey, with an ex-pensions minister saying they may find themselves stretched to “breaking point.”
Research from financial services firm SunLife found that of the two-thirds (69 per cent) of over-fifties that are homeowners, more than one in five (23 per cent) are still paying off their mortgage.
A survey of over 2,000 by polling firm Critical Research for SunLife found 38 per cent of those it surveyed were retired and 7 per cent were homeowners with existing mortgage debt.
Using Office for National Statistics (ONS) data, SunLife analysis suggests this shows 500,000 retirees could still be paying off their mortgage.
Sir Steve Webb, ex-pensioners minister and now partner at consultants LCP, told i: “For growing numbers of people, it will be a challenge to save enough to cover even the basic costs of retirement such as household bills and running a car, but having to fund a mortgage could stretch household finances to breaking point.”
On average, these retired mortgage holders still owe £33,627, which, over a remaining five-year term at a rate of 5.5 per cent (the current average for a five-year mortgage), would be a monthly payment of £642.
Most estimates of the pension pot needed for a decent retirement assume that people own their home outright by the time they finish work, Sir Steve added, but the reality shows this is not the case for many.
He added: “With growing numbers of people facing either ongoing mortgage costs or rental bills, we will need to think much harder about how we plan for later life finances.
“We also need to look at mortgage lending practices to make sure people are not being encouraged to borrow beyond their means.
“Although there are options for people such as downsizing or equity release, each of these can be expensive and will not be an option for many”.
Mark Screeton, chief executive of SunLife, said that the vast majority of retirees in the country are “cash poor and property rich”.
He said: “According to our research, the average homeowner retiree has a home worth more than £320,000 but a household income of less than £30,000.
“This means that the vast majority are cash poor and property rich. And while most own their homes outright, around one in 14 still have a mortgage. So, for those people, a chunk of that relatively modest income is still being spent on housing, rather than on making the most of life in retirement.”
Mr Screeton said that equity release could be one option for people in this situation, though Sir Steve warned this could be very expensive.
“For some of these people it could make sense to tap into the equity that’s tied up in their homes. But for many, downsizing to free up the cash is not an option – maybe it’s too expensive, or they have emotional or physical ties to their homes and neighbourhoods. That’s where equity release, where suitable, could offer a solution,” Mr Screeton said.
Equity release allows homeowners over the age of 55 to unlock money from their home. It can be taken as a tax-free lump sum, or in instalments, and is particularly popular among people with limited pension or other savings who want to boost their cash flow.
The interest rates charged on equity release mortgages are higher than regular home loans.
And due to the “rolling up” of interest, your loan can grow quickly. If you took out an equity release loan of £50,000 at 6.99 per cent and the house was sold 10 years later, you would owe more like £100,000 – so it can be worth speaking to a financial advisor before taking one out.