Research from pensions and retirement specialist LV= highlights how millions of people are retiring with large mortgages debts.

The LV= Wealth and Wellbeing Monitor* – a quarterly survey of 4,000+ UK adults – reveals that 12% (1.5m) of retirees say they had outstanding mortgage debt when they retired.

The average amount to pay off at retirement is £43,000, but 19% (277,000) had debts of £50,000- £99,000 and 11% (165,000)  more than £100,000.

Of those who had outstanding mortgage debt when they retired, more than half (56%) said they used their pension to pay off their mortgage debts. 6% said they continued to do some paid work, 5% downsized and 5% used equity release. Only 4% spoke to a financial adviser.

Meanwhile, a third (33% 4.5m) of mortgage holders don’t think they will have paid their mortgage off by the age of 65 and 9% (1.2m) of mortgage holders are not sure they will ever be able to pay off their mortgage.

Those aged 55-64 are considering several ways to pay off mortgage debt in retirement:

• Half say they would carry on with paid work
• A quarter would use their pension to pay off their mortgage
• About a quarter (24%) would downsize
• 9% would use equity release
• 8% would rent out a room 

Clive Bolton, managing director of protection, savings and retirement at LV=, said: “The LV= Wealth and Wellbeing Monitor highlights how for millions of people the dream of a mortgage–free retirement is over. The huge rise in house prices – and accompanying longer mortgage terms – mean millions of people will go past their retirement age with large mortgages to pay.

“Retirement is a major life change for people. The switch from bringing in a regular income to living off pensions and savings for the rest of your life can put a strain on finances. A mortgage is often a household’s largest monthly bill and LV=’s research shows that millions of people already worry about running out of money in retirement.

“A large mortgage will add to their concerns, particularly if interest rates rise significantly, and paying a large mortgage means many people will draw down money from their pension at a rate that is unsustainable.

“People approaching retirement have several options when paying off their mortgage. Selling your home and moving to a smaller property is one of the simplest choices but some people use the 25% tax-free cash to pay off or reduce their mortgage while others will consider a lifetime mortgage if the outstanding balance is small enough. Consulting a financial adviser will enable people to find the best option for them.”