Mortgages will extend beyond age 65 for more than a third of borrowers
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More than one in three new mortgages being taken out today will extend beyond the borrower’s 65th birthday, the Council of Mortgage Lenders (CML) has said.
Lengthening mortgage terms and the older age at which people are managing to climb on to the property ladder mean that nearly 35 per cent of new home loans are not expected to be paid until the borrower has passed the nominal retirement age of 65, the CML said in an article on its website.
It said that in recent times, a growing proportion of mortgages extending beyond the age of 65 have been taken out by home movers, now accounting for around half the total.
But the number of first-time buyers taking out mortgages that will mature beyond the age of 65 has also been edging upwards, and accounted for 21 per cent of the total in the fourth quarter of 2014, the CML said.
An increase in the proportion of first-time buyers who are taking out longer mortgage repayment terms is contributing to the trend of people getting a loan which will last into an age when many people would be thinking about putting their feet up.
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More than half of first-time buyers are now taking out a mortgage that they expect to repay over a term lasting longer than 25 years.
People may be choosing longer mortgage terms due to affordability constraints, as it is one way of making their monthly payments smaller, the article said.
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Longer mortgage terms could also be a side effect of a clamp down on interest-only mortgage lending in recent years, the article suggested.
Interest-only mortgages give people cheaper monthly payments, but the borrower is not actually paying off the debt during the term of the mortgage. This means that the borrower should have other arrangements in place to make sure they can pay off the capital.
Stricter rules have been introduced around interest-only mortgages, which are nowadays seen as more of a niche product, with fewer borrowers able to take out deals.
The CML said that most mortgages extending beyond 65 years old will be paid off shortly afterwards. Around 80 per cent of mortgages extending past the borrower’s 65th birthday are due to be repaid before the customer turns 70.
The article said that the rapidly ageing population of the UK is likely to have a significant impact on retirement borrowing.
More than 11 million people, accounting for around 17 per cent of the population, are aged 65 and over, a figure which is expected to grow to around 17 million people, or nearly 25 per cent of the population, by 2034.
The CML described the issues for lenders as “complicated”.
It said that key issues around retirement borrowing included the question of whether people will need new kinds of products - and whether consumers need a product that can “’morph’ from mortgage to lifetime mortgage”.
It said: “Some borrowers may want to work beyond their expected retirement age, but are their plans really plausible?”
The recently-introduced pension freedoms, which allow people to access their retirement savings more flexibly, could also have a “significant impact” on retirement borrowing, it said.
The reforms mean that instead of being forced to buy a regular retirement income called an annuity, people aged 55 and over with a defined contribution (DC) pension can now take their pot how they wish, subject to tax.
“Lenders will have to look carefully at individual borrowers’ plans for repaying their mortgages - as well as the potential for their circumstances to change unexpectedly,” the CML said.