A third of those with a mortgage do not think they will pay it off by the time they are 65, according to data this week. It coincided with HSBC becoming the latest big lender to increase its maximum mortgage term to 40 years.
The chaos in the home loans market has resulted in millions of people in the UK being hit with or facing dramatically higher costs – prompting many to look at stretching their mortgage term in order to bring down their monthly payments.
Many of the mortgage products available have a standard maximum term of up to 40 years but some lenders have resisted offering customers a term of that length.
This week, one of them, HSBC, said it had decided to increase its maximum term from 35 to 40 years, saying that by doing this, “we aim to help make mortgages more manageable, with lower monthly repayments, and home ownership a reality for our customers”.
Lengthening the duration of a home loan cuts the monthly repayments but the flipside is that you end up paying a lot more interest because you reduce the mortgage balance more slowly.
With the average age of a UK first-time buyer standing at 32, that raises the prospect of large numbers of homeowners not achieving mortgage-free status until they are in their 70s.
More lenders letting borrowers supersize their mortgage term will definitely help many with the current affordability challenges but it also suggests that the dream of a debt-free retirement is moving further out of reach for millions more people.
Research issued this week by the insurer and retirement specialist LV= found that 32% of mortgage holders do not think they will pay off their home loan by the age of 65.
However, when it came to those who were retired, the research found that one in 10 still had mortgage debt at the point they stopped working.
The average mortgage debt outstanding at retirement was £38,000. Almost two-thirds – 63% – of those who retired with an outstanding home loan debt had to pay this off with their pension.
David Stevens, the director of savings and retirement at LV=, says: “High inflation combined with longer mortgage terms means that more people will be forced to continue paying mortgages during retirement.
“This could result in less discretionary income for pensioners to spend on the more enjoyable things they had in mind for their retirement.”
HSBC’s new 40-year term applies to its residential repayment and buy-to-let mortgages, and is available now to those who take out one of its deals via a broker, and from 13 September for customers applying direct.
Any additional borrowing, either standalone or in conjunction with a remortgage, can now also be arranged over 40 years.
Nicholas Mendes, a mortgage technical manager at the broker John Charcol, says: “By extending the term, this will allow more mortgage holders to reduce the impact of higher rates on their payments.” HSBC’s move brings it in line with most of the market and competitors, he adds.
