Ex-pensions minister: ‘Serious questions’ for lenders as ultra-long mortgages surge
Young homebuyers are at risk of falling into poverty in older age, a former pensions minister has warned, as fresh data suggests more than 1m new mortgages over the last three years were issued with end dates beyond the state pension age.
In the final three months of 2023, 42 per cent of new mortgages, or 91,394, had an end date beyond the state pension age, a freedom of information request from ex-Liberal Democrat MP Steve Webb to the Bank of England revealed.
This figure is up from 38 per cent during the same period in 2022 and 31 per cent in the last quarter of 2021.
Webb, now a partner at consultancy firm LCP, said longer-term mortgages risk depriving people of being mortgage-free and boosting their pension pots in the years before they retire.
“Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests,” he said.
“We already know that millions of people are not saving enough for their retirement, and if some of that limited retirement saving has to be used to clear a mortgage balance at retirement, they will be at even greater risk of poverty in old age.”
Analysis by Standard Life found that those who begin working on a salary of £25,000 and pay the standard monthly auto-enrolment contributions from the age of 22 could build up a total retirement fund of £461,000 by the age of 66, discounting inflation.
However, the firm said topping up contributions by four per cent for a decade from age 55, the age at which a 25-year mortgage term taken out at 30 would be paid off, could result in a total pot of £513,000.
Banking trade body UK Finance’s latest Household Finance Review found that one in five first-time buyers took out a mortgage of at least 35 years in 2023, compared with fewer than one in 10 in 2022.
Emily Shepperd, chief operating officer at the Financial Conduct Authority, said last week that the proportion of mortgage customers aged over 67 is projected to rise from less than two per cent currently to five per cent by 2040 and nearly 10 per cent by 2050.
Brokers have defended longer-term fixed mortgages as an affordable option for people struggling with higher borrowing costs from the Bank of England, as they involve lower monthly repayments.
Justin Moy, managing director of EHF Mortgages, told Newspage: “On the surface this data is highly concerning but in practice there will be many opportunities to reduce the term at a more affordable time, as incomes improve and rates reduce, as rates mature and people move home or downsize.
“State retirement age is also likely to increase during this period, so this becomes a very small problem overall.”
Karina Hutchins, principal for mortgage policy at UK Finance, commented: “When reviewing new mortgage applications, lenders will act within the responsible lending rules set by the Financial Conduct Authority and carefully consider whether the borrower will be able to afford their mortgage in the future.”