Mortgage Loan Burden: when the mortgage is paid off and they can relax and enjoy more free time with family and friends

Many people look forward to retirement as a time when the mortgage is paid off and they can relax and enjoy more free time with family and friends.

But for a rapidly growing number of people, the prospect of a mortgage-free retirement is looking much less likely.

New figures I have obtained from the Bank of England show that in the last three years more than a million mortgages were issued which will run past state pension age.

This is roughly two in five of all new mortgages issued over that period.

With houses becoming increasingly unaffordable for the young in particular, it is understandable that more people are reducing their monthly payments by taking out a loan stretching decades into the future.

But the worry is what this will mean for their standard of living in retirement.

Even the government accepts that many millions of people are on course for a disappointing retirement. And this is before any allowance is made for having to service a mortgage on top of other household bills.

One risk is that if families have an outstanding mortgage when they retire they will raid their pension pot to clear the mortgage, leaving them even less money to live on in retirement.

In theory, the mortgage companies will take account of people’s ability to service a mortgage, including into retirement, before they will lend the money.

But it is pretty much impossible to guess what pensions someone in their thirties will end up with decades later, so it is hard to see how lenders can be so confident that things will not go wrong.

As mortgage rates start to fall it is to be hoped that the need for these super long mortgages will diminish, but the early signs are not promising.

We need to avoid a situation where people are borrowing more than they can afford only to find later in life that their retirement finances are stretched to breaking point.

Steve Webb is a partner at pension consultants LCP and was pensions minister from 2010 to 2015