Mortgage payment fears in retirement

A considerable proportion of people could be in a position where they are entering into retirement but continue to face high levels of mortgage debt in the coming years and a new study has highlighted the steps many will be taking to reduce their financial burden.

Research carried out by specialist insurer Partnership has shown more than half a million people currently aged between 40 and 70 plan to retire with their mortgage still to pay and while the majority will use traditional means to service this debt, there are a considerable proportion who will be turning to their pensions to help themselves become mortgage-free.

Overall, 58 per cent of those heading into retirement with a mortgage will continue to make monthly repayments on their borrowings until their debt is cleared. Meanwhile, 22 per cent plan to do this but also make as many lump sum payments as possible to pay off their borrowings faster.

Conversely, there are a growing number of mortgage holders that have other ideas when it comes to owning their home outright, with one in ten planning to use their tax free pension lump sum to repay the outstanding balance on their mortgage, while five per cent will use their entire pension.

Seven per cent of respondents stated they have other savings set aside that they plan to use to either considerably reduce their mortgage or to pay it off completely.

For some though, it remains uncertain as to whether or not they will be able to repay their mortgage at all, as six per cent are planning to use an inheritance to pay off their debts and three per cent will be taking in a lodger.

Responding to the research, head of product development at Partnership Mark Stopard said it is these latter groups that pose the most serious concerns, as neither receiving an inheritance or being able to find a long-term house guest are guaranteed sources of income.

Indeed, it is generally a worrying development that so many hundreds of thousands of Britons will still hold mortgage debts when it comes their time to retire, while this figure might actually turn out to be much higher, with issues like redundancy, illness or family financial emergencies not taken into account.

"While it is natural for people to want to retire debt-free, the purpose of these savings is ideally to provide an income for their retirement – which can last up to 30 years or more," Mr Stopard stated.

"Although the state pension will provide a very basic safety net, it is unlikely to be sufficient for people to have as comfortable a retirement as they might wish.

"This research clearly highlights that people need to focus on repaying their mortgage as early as possible and avoid traps such as remortgaging for the full period each time they take out a new deal. Even those who are currently retiring have options such as working longer, downsizing or taking out an equity release plan – all options that will help to keep their pension funds intact."

Individuals faced with the prospect of considerable debts in their retirement should consider the benefits of talking to a professional financial adviser, as these individuals should be able to point them in the right direction towards managing their finances more effectively.

Measures including debt consolidation, IVAs and even bankruptcy are open to those individuals who are really struggling with excessive borrowings, but for many simply talking to a professional about ways to better manage their money could be all it takes to ensure they have a happy and affordable retirement.

Posted by Joe White