One of the biggest financial outlays we are likely to face during our lives is a home mortgage. Paying back several hundred thousand pounds, of course, takes time. Recent statistics, however, show that as many as 1 in 6 of us will still be paying off our mortgage by the time we turn 65.
If we take a closer look, however, the statistics reveal an even more alarming trend. We’re much more likely to take our mortgage debt into our retirement years than generations that have gone before.
While younger, first time home buyers are mostly optimistic about paying off their sizeable mortgages by the time they finish work, the FCA says that this may be misplaced confidence on their part.
· Nearly 40% of people who bought their first property with a mortgage in 2017 are likely to be paying it off after the age of 65.
· Even among homeowners over the age of 55, about a quarter know that they will still be paying their mortgage into their seventies.
· Some don’t believe (12%) that they will get to the state where they have fully paid back their mortgage completely before they die.
Why is it Harder to Pay Back Your Mortgage Now?
There are a couple of reasons for this. The first, of course, is the disparity between the rise of house prices and earnings. At the start of the 70s, the average house price was around £5,000. Prices then began to shoot up in the 1980s after right to buy was introduced. Even then the average price was just under £40,000. Today, the average price of a house in the UK is £235,000. In areas like London, it’s £472,000.
The other factor that is affecting whether people are going to be able to pay off their mortgage before retirement is when we are choosing to buy. We’re becoming homeowners much later in life than before. That’s also down to several reasons. The first is that as a population we’re becoming more professional and many of us are in education longer. Saving for a large deposit also means that many potential homeowners have to wait until they have got this together before they can buy. This generally means that we are borrowing more, much later in life and for longer periods.
Other factors can also influence our attempts to pay back our mortgage: starting over after a divorce; dipping into equity in the house to help children or even ending up owing more than the house is currently worth for various reasons.
Should You Be Worried About Paying Off Your Mortgage?
Some people may feel that having their mortgage extend beyond 65 is nothing to worry about, but it could present issues for others. What happens if your pension doesn’t cover the mortgage payments? What happens if you become sick in later life and can’t work? There are several solutions to these potential issues, such as: repaying more while you can, switching to a retirement interest-only mortgage or even paying it off using your pension lump sum. These options might not be suitable for everyone, so it is important to seek professional advice if you are worried that your mortgage is not likely to be paid off before you retire.