According to a recent study, one in six people think they will still be paying a mortgage after the age of 65. This means many will at best be holding back retirement and at worst handing the keys to their property back to the lender when they should be enjoying their twilight years. This highlights a generational divide between previous generations who will have benefited from buying property relatively cheaply and building substantial amounts of equity when property prices increased markedly in the 80s, 90s and 2000s.
While it is still the case that property prices in London continue to rise in line with huge demand for property in the capital, outside of London, there is a very different story with some regions not having seen significant rises in the value of property since the financial crisis. This means the generation who bought post 2007 will face a very different future to their parents who bought when property prices were relatively low as a proportion of income. Despite the well documented struggles the younger generation (16-34 year olds) have in getting a foothold on the property ladder due to the high cost of properties, this age group happened to be the most optimistic about the future. According to the study by Hargreaves Lansdown 80% of this generation expect to have paid off their mortgage by the time they are 65. For many those with a mortgage aged 55, however, there are a sizeable proportion of homeowners (26%) who don’t expect to pay off their mortgage until they are over 70 with 12% thinking it will never be repaid.
While there will be those in each age group who are looking forward to a pension that will provide enough income to pay off a mortgage before or even after the age of 65, it is clear that many who took part in the survey do not have a long term plan for paying off their mortgage. Yet having a long term plan to pay off a mortgage is essential and it can even help save thousands of pounds in interest. Reducing the term by overpaying is one option, another is re-mortgaging to a lower fixed interest rate that will help with the former option. A good independent mortgage broker can often find a better mortgage that will lower monthly repayments and pay off a mortgage sooner. Even at the end of the term there may be options such as selling the property or releasing equity but if the property happens to be a home, then it can be a difficult for some people to consider selling up and downsizing to a smaller home even if that offers a practical alternative.
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