Almost four in 10 mortgage borrowers expect to enter retirement without having paid off their home loan, research from Royal London reveals.
The study found 37% of mortgage borrowers expect to face housing costs in retirement, highlighting the growing importance of later-life affordability and retirement planning as mortgage terms become longer.
Across renters and homeowners, around 18.7 million UK adults either expect to have housing costs in retirement or are already paying them.
Of the approximately 16 million who expect to face rent or mortgage payments after they retire, 39% – more than six million people – do not know how they will fund them.
LONGER MORTGAGE TERMS
Royal London’s findings suggest longer mortgage terms could increasingly push repayments into borrowers’ retirement years.
Among homebuyers aged 18 to 34, the average original mortgage term was 31 years, while 43% had taken out a mortgage with an original term of at least 35 years.
That compares with just 2% of current retirees who originally took their mortgage over 35 years or more.
However, mortgage borrowers were considerably less likely than renters to expect housing costs deep into retirement. Some 7% of mortgage holders expected to continue making mortgage payments for more than 10 years after retiring, compared with 45% of renters who expected to still be paying rent.
Younger adults were also more likely to anticipate carrying housing costs into retirement, at 44% of those aged 18 to 34 compared with 24% of 50 to 69-year-olds.
RETIREMENT SAVINGS GAP
The research also identified a substantial difference in pension savings between those expecting housing costs in retirement and those who do not.
Those expecting to continue paying for housing had an average pension pot of £34,948, compared with £120,682 among those expecting to be free of housing costs.
Sarah Pennells, consumer finance specialist at Royal London, said: “For generations, reaching retirement often meant reaching the point where housing costs were behind you. But for millions of today’s retirees and future retirees, that simply isn’t the reality.
“Whether it’s renting for longer, taking out larger mortgages or stretching repayments over decades, more people are approaching retirement still facing significant housing costs.
“What’s particularly worrying is that over six million people who expect to pay rent or mortgage costs in retirement don’t know how they’ll cover those payments.
“If you’re heading towards retirement and expect to have housing costs, it’s important to factor these into your retirement planning as early as possible.
“Housing costs can make a huge difference to how far retirement income will stretch. Understanding what your housing costs could look like in later life can help you develop a more realistic picture of the income you’ll need in retirement.”
