Managing A Mortgage Post Retirement

Two trends are combining to create what could be a major issue for the mortgage market and, indeed, for the UK as a whole.  Firstly, people are waiting longer to get on the housing ladder (or being forced to do so).  Secondly, mortgage lenders are now offering multi-decade fixed-rate mortgages.

A new mortgage time bomb?

If you buy your first home in your mid-thirties and take out a forty-year mortgage (fixed-rate or otherwise), then it will end in your mid-seventies.  Of course, this assumes that you never change your mortgage.  In reality, people who bypass starter flats and make their first purchase of a family home may well choose to downsize once the children have flown the nest.

Then again, they may not.  Even if they do, they may not be able to pay the full price in cash.  From a financial perspective, downsizing isn’t as cut and dried as it might appear.  There are a lot of variables to consider.  It definitely has the potential to save people money but this is not guaranteed.

It also needs to be acknowledged that some relationships come to an end.  When they do, the two halves of a former couple both need to find themselves suitable accommodation.  This has clear implications for personal finances in general and mortgages in particular.

This means that, whatever way you look at it, there is at least the strong potential that people will still be paying off their mortgages well into their later years.  Whether or not this means that they will be paying them off post-retirement will depend on individual circumstances.  The most obvious of these is when, or indeed if, the individual retires.

What and when is retirement?

Retirement used to be pretty cut and dried.  If you had bought a house, you had paid off your mortgage (or were at least very close to it).  You had a defined benefits pension and/or a pension pot you used to buy an annuity.  This gave you a liveable income for your (relatively short) retirement years.

Now retirement is a combination of what any given individual says it is and what they can afford it to be.  Some people are able and willing to go on working indefinitely, at least in some capacity.  Some people are able to work but do not wish to do so.  Some people are simply not able to work indefinitely regardless of whether or not they wish to do so.

Realistically, despite the benefits of modern science, age is a lot more than just a number.  Anybody can be rendered incapable of working even if they would like to.  What’s more, even if you’re willing and able to work, the work might not be there for you to do.  This means that it’s extremely risky to rely solely on continued income from work to pay your mortgage at any time.  It’s particularly risky in your later years.

Mitigating the risk

The most obvious way to mitigate the risk of carrying a mortgage into retirement is to do as much as possible to pay it off before you retire.  This may involve making sacrifices in the present to benefit your future self.  For example, you might choose to let out a room in your house (even if it means the children sharing rooms for a while) and forgo treats like holidays.

You should definitely look at protecting your income so you can continue to pay your mortgage if hit by one of life’s curveballs.  If you’re employed, you could look at payment protection insurance.  Regardless of your employment status, you could look at critical illness cover, income protection insurance and life insurance.

Last but definitely not least, you should look at maximising your savings and income for retirement.  One potential strategy would be to use your Lifetime ISA to build up a pot you could use to pay down your mortgage upon reaching retirement age.  They use a pension and/or other savings/investment vehicles to save for your living expenses.

For mortgage advice, please contact us

For pensions, savings, investments, and payment protection insurance we act as introducers only

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