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Millions of homeowners facing ‘mortgage time bomb’

Millions of homeowners facing ‘mortgage time bomb’

Category: Retirement

Updated: 07/12/2016
First Published: 06/11/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
Millions of homeowners facing 'mortgage time bomb'

The ever increasing cost of living is eclipsing thousands of people's prospects of retiring completely debt-free, with over 100,000 homeowners aged 65 and over still struggling to pay off their mortgages.

Equity release lender, More 2 Life, who compiled the research, believes the issue is a result of changes to traditional working patterns, as well as the average age of a first-time buyer rising to 35.

Of course, as well as impeding many people's ability to retire debt and stress-free, outstanding mortgage debt later in life can pose financial risks.

Despite best intentions, some people may not be able to continue to receive a regular income through working full-time, for example due to health issues, impacting upon their ability to meet monthly repayments.

Meeting monthly mortgage repayments whilst income takes a hit during retirement years can also impact on day-to-day living costs such as food and household bills.

Stephen Lowe, head of external affairs at Just Retirement, said: "Some people will not be able to continue working and they may not have capacity to do so, particularly if they are in roles that require heavy labour or lifting.

"But many people will have to extend their working lives because they will not be able to afford to not work. We are seeing people who are taking on part-time roles as a way to top up their income."

Additional research released by the Council of Mortgage Lenders (CML) has also warned that homeowners approaching their retirement years with interest-only mortgages face a potential 'mortgage time bomb'.

Millions of interest-only mortgages were sold, prior to the financial crisis, to borrowers looking to pay off just the interest, not the capital. Lower monthly repayments, compared to being on a repayment deal, also meant many borrowers opted into these mortgages in order to borrow a larger amount, in some cases more than they could actually afford.

Poorly performing repayment vehicles, such as endowments, which run alongside a mortgage to cover the cost of the repayment upon reaching retirement, are expected to impact massively on millions of borrowers.

Returns on endowments, in particular, are significantly lower compared to a few years ago when homeowners signed up to the policies. In fact, the Financial Services Authority (FSA) predicts that 150,000 borrowers will see their interest-only mortgages mature every year until 2020, of which 60,000 will extend the term.

Shockingly, the regulator anticipates 42,000 of the extended term interest-only mortgages to be held by people aged over 65, of which a great deal are in negative equity.

Even more worrying is the fact that around 37,000 borrowers aged over 60 have no repayment plan in place to cover the impending mortgage costs.

Jon King, managing director at More 2 Life, said: "There is a potential mortgage time bomb ticking, with pensioners paying home loans way past traditional retirement ages.

"Some can afford to pay off their mortgages, but many will face income shocks and could really struggle if they still need to pay off a home loan as well as paying for the basics."

The issues facing millions of people approaching or already in their retirement years are widely believed to be behind a spike in the number of people seeking retirement advice and the sales of equity release plans.

Research by found that 31% of people used equity release schemes during the first six months of this year, significantly higher than the 23% recorded in the same period last year.

Whilst almost half of older homeowners claim they are reluctant to downsize their home to cope with rising living and repayment costs, Lowe stated that equity release can be a useful option for older homeowners concerned at meeting monthly mortgage repayments.

"If you don't have the wealth to fall back on then consider equity release. People want some money to pay the mortgage off, stay in the house and get a bit of money to top up their income," he said.

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