Thousands of homeowners could end up paying off their mortgages well into their 70s, with the state pension not enough to cover costs alone, new data has shown.
To manage high monthly payments, more buyers are opting for longer mortgage terms, reflecting growing challenges in housing affordability.
The Nationwide Housing Affordability Report, released today, shows how tough it is for many people to buy a home. This is especially clear in the growing trend of buyers choosing longer mortgage terms to make payments more affordable.
There has been a 156 per cent increase in people over 36 taking out 35-year mortgages since 2019, according to Freedom of Information data from the Financial Conduct Authority (FCA).
In the first nine months of 2024 alone, 22,103 of these long-term mortgages were issued — already surpassing the total number for any full year since 2018.
Karen Noye, mortgage expert from Quilter warns that this shift to longer mortgages could result in “a generation of retirees who are either burdened with mortgage debt well into retirement” or unable to buy a home at all.
Opting for these longer mortgages will see paying mortgage costs until the age of 71
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Noye said: “Retirees on fixed incomes will face the burden of managing mortgage repayments alongside other living costs, while those who remain renters will grapple with escalating rental payments that erode their savings and leave little room for a secure and comfortable retirement.
“This generation’s housing affordability crisis threatens to create a profound legacy of financial insecurity.”
Those opting for longer mortgages will need to be confident they can afford to make repayments until the age of 71 – three years after they can expect to qualify for the state pension, and 14 years after they reach the normal minimum pension age.
However, experts warn the state pension payments alone will not be enough to cover repayments meaning retirees will need other sources of income to manage this.
For example, data from Quilter found that a 36-year-old taking out a £250,000 mortgage over 35 years at the current Bank of England base rate of 4.75 per cent would face monthly repayments of £1,145.
While interest rates may change, borrowers must be confident they can keep up with these payments well into retirement.
Though the extended mortgage term helps reduce monthly payments, it means borrowers will “pay significantly more over the life of the loan”.
The full state pension currently sits at £221.20 a week (2024/25 tax year), or approximately £960 per month. While the state pension will increase over the 35-year mortgage period, so too will the everyday cost of living.
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Noye explained that “this makes it unlikely that the state pension alone will cover a mortgage repayment alongside everyday living costs, leaving people reliant on savings”.
This is far less than the £1,145 needed to cover the example mortgage payment, not including other living costs.
While both the state pension and living costs are likely to rise, she explained the state pension alone will likely not be enough to cover mortgage payments and everyday expenses.
This means future retirees will have to rely on additional savings or pension funds to meet their housing costs in later years.
Jonathan Bone, Head of Mortgages at Better.co.uk, highlights some advantages to longer mortgage terms, despite the risks.
He said: “One of the biggest advantages of spreading a mortgage over a longer period is that the monthly repayments will be lower than if you opt for a shorter term.”
Bone explained that longer terms make homeownership more affordable in high-cost areas, offering flexibility and the possibility of making extra payments without penalties when finances allow.
However, the mortgage expert said that “a longer mortgage term can lower monthly payments initially, a major drawback is the higher overall interest costs.”
Extended terms also slow down equity growth, which can limit options for remortgaging or moving to a new property.
There are also concerns about securing mortgages that last into retirement, as lenders often require proof of sufficient pension income to continue making payments.
