New data from online mortgage broker Trussle has found that the next generation of homeowners may be paying off their mortgages into retirement. This is due to a combination of the increasing age of first time buyers and buyers seeking longer term mortgages.
Data from lenders indicates that the average age of first time buyers has risen to 32, up from 29 a decade earlier.[1] This increase is unsurprising as house price inflation has caused the age of first time buyers to rise sharply. Worryingly, this trend could be exacerbated further by the current cost of living crisis, and we will likely see the age of first time buyers continue to increase.
Furthermore, first time buyers have been seeking longer 35 year mortgages in an attempt to combat spiraling house prices during the Stamp Duty Holiday. Data from the Financial Conduct Authority during this period reveals a record 63,158 35 year mortgages were taken out by first time buyers, representing a 75% year-on-year increase.[2] While this means first time buyers will ultimately repay more over the course of their mortgage term, it will make their monthly repayments more affordable in the short term.
Furthermore, the age at which people retire is projected to increase over the coming decades as the government seeks to balance the cost of an aging population by lengthening the time people spend in work. The state pension age for men is currently set to reach 67 by 2028.[3]
Trussle is therefore warning that people could be paying off their mortgages during periods of life when people traditionally begin to focus on saving more for retirement. However, the reality could be that we also see people paying their mortgage during retirement. As a result, if we do not see greater action on affordability, the standard of living among retirees could begin to decline significantly.
Amanda Aumonier, Head of Mortgage Operations at online mortgage broker Trussle, comments: “This is an alarming trend that has been brewing for years. When purchasing a home, buyers naturally think about the here and now, which typically means looking for ways to keep their payments as low as possible. But, while taking out a longer term mortgage can be an effective way to keep short term costs low, you will end up paying more back in the long term. Not only this, but you could also still be paying off your mortgage during a period of life when your income begins to drop.
It’s no secret that housing affordability has been spiralling for years, impacting the possibility for many first time buyers to get on the ladder. But, we have also taken a short term approach into calculating the impact of soaring house prices. This new data shows that the ramifications will reverberate for decades to come and will lead to consequences not yet accounted for. If this trend is to be addressed, we will need to see urgent action on affordability today.”
For those able to get ahead of their mortgage payment, overpaying on your mortgage can significantly cut the term and therefore overall cost of your mortgage. Overpaying by as little as £50 each month can shave 2 years off your mortgage and save you £5,000.
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