Published On: Thu, Jul 11th, 2024
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First-time buyers warned they may have to use pension to pay for home | Personal Finance | Finance

First-time homebuyers are being issued a stark warning from financial experts as an increasing number of people face the prospect of ongoing expenses into their retirement years.

Those looking to purchase their first property are being urged to consider a significant financial burden that previous generations rarely had to contemplate: the possibility of dipping into their pension pot to pay off their initial home.

Recent data analysis has shown that more individuals are continuing to make mortgage repayments post-retirement, as they take on loans with terms exceeding 30 years, with the average term being 31 years according to UK Finance data.

These extended terms are designed to assist people in stepping onto the property ladder by offering more manageable monthly repayments.

However, a 35-year mortgage essentially ensures that anyone currently over the age of 31 purchasing their first home will still be paying it off after reaching state pension age. This likely means they will need to factor mortgage repayments into their pension budget.

Given that the average age of a first-time buyer is now 33, this could become a harsh reality for numerous homeowners.

Chris Sykes, associate director at Capital Finance, suggests that longer mortgage terms are not just gaining popularity due to lower monthly repayments, but also because more people are extending their terms in the hope that the market will eventually swing in their favour.

He told Mail Online: “In the current higher rate environment, many individuals likely hope to extend their terms now and then refinance at a more competitive rate in the future.”

He also suggested that those with long mortgage terms should try to make overpayments on their monthly instalments to reduce their mortgage quicker and save money on interest in the long run.

Chris said: “Even a small monthly overpayment of £30 – just £1 a day – can pay off the mortgage one year and five months earlier, and save £12,486 in interest.”

According to Mojo Mortgages, first-time buyers in London are expected to pay off their mortgages, on average, a year after they hit the state pension age of 67. Meanwhile, those in the West Midlands and South East are not far behind, with average ages of 64 and 65 respectively.

John Fraser-Tucker, head of mortgages at Mojo Mortgages, expressed his concern and caution for those looking to buy property, stating: “While longer mortgage terms can provide some short-term relief in the form of lower mortgage payments, they come at the cost of significantly higher overall interest charges over the life of the loan.”

Despite these warnings from experts, a significant number of retirees are still dealing with mortgage payments. SunLife, a life insurance provider, reports that over 500,000 retired individuals in the UK have outstanding mortgages, with an average remaining balance of £33,627, which could mean a monthly payment of around £635.

Mark Screeton, CEO of SunLife, pointed out the gap between pension income and mortgage payments, indicating many retirees are “cash poor and property rich”

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