Two in five mortgages will run past retirement age

We downsized to go mortgage-free and enjoy retirement between Spain and the UK, Teri and Chris Gooch moved from a four-bed house to a three-bed – and are using the spare cash as ‘spending money’ in their retirement.

Teri and Chris Gooch are planning to enjoy their retirement living between Spain and Essex after downsizing from their four-bedroom property and going mortgage free in the process.

The couple, who are 58 and 63 respectively, bought their retirement home near Dénia in eastern Spain, nearly nine years ago and have been renovating it on and off since.

But they have now opted to move from their four-bedroom house in Suffolk to a three-bed home in Manningtree, Essex, to “free up cash to enjoy retirement more,” and spend their golden years between Spain and the UK.

Their four-bedroom home had a small repayment mortgage on it but the sale covered the majority of the cost of their new home, allowing them to buy outright.

Chris, who describes himself as “essentially retired” bar some occasional consulting work, said the extra cash they save through not having a mortgage gives them the chance to enjoy their retirement more.

“It’s extra spending money. It allows us to go out for meals, do things out in Spain and the UK. The downsizing also means there’s less housework, as we have a smaller house,” he says.

The pair say their decision to downsize has worked out well for them, as they don’t feel they’re missing anything from having a smaller home.

“We feel as if we have just as much living space, we were essentially just storing clutter before and we thought it was getting ridiculous,” says Terri.

Their children are in their thirties and have left home, meaning they did not need the extra space, and living between the two countries allows them to spend time with their grandchildren in the UK while also enjoying the lifestyle out in Spain.

Chris says he estimates costs when the couple are on the Continent are around “20 per cent cheaper” than they are when they are back home in Essex, thanks to lower shopping costs, bills and more.

The pair don’t spend fixed parts of the year in Spain, choosing to flit between their two homes on a regular basis, and cannot stay for more than 90 days in a 180-day period.

“If we hadn’t downsized, we’d have still tried to live between the two countries, but we’d have had less to spend,” says Chris.

“We’d have maybe done it, but in a cost efficient way,” he adds.

“We did have the choice of moving overseas permanently, but we decided to downsize and keep a base in the UK to stay close to family. Both myself and Chris still support my elderly father and love to help and babysit our grandchildren whenever we get the chance so this way, we get the best of both worlds,” says Teri.

But both say there are disadvantages to Spain too, when compared to the UK.

Among other things, Teri says the tea bags they sell in Spain are not as good as in the UK, and Chris says he would miss playing golf back home in Essex.

But the couple say they would recommend to others that they try their lifestyle.

“Personally, if you can afford to have two homes, I’d recommend it. You’ve got two homes to upkeep but we’re very lucky. Having a UK-base is so important to us, as this is where our family is but also having a Spanish home to escape the wet English weather is a blessing,” Teri adds.

Getting couples who have had children leave home has often been touted as one way to tackle the housing crisis, as it could free up the supply of larger homes for families, who may otherwise be unable to afford them.

But experts say it still remains relatively uncommon.

Richard Donnell, executive director at property website Zoopla, told The i Paper: “For people in an average three-bed there isn’t as much money in downtrading. It tends to be more financially appealing for people in larger homes who may have more wealth.”

More than a million mortgages have been issued in the past three years which home-buyers are set to still be repaying into pension age.

The latest data shows that two in five new mortgages have terms that see homeowners still making payments in retirement.

Ultra-long, or extended, mortgages have become more popular during a time of higher interest rates as people aim to spread the cost.

But this will ultimately make the loan more expensive, and experts say it raises serious questions over financial planning for retirement.

At the end of 2021, about three in 10 mortgages took repayments into pension age, according to Bank of England figures obtained by the pension consultancy LCP.

That proportion grew as interest rates rose. Despite interest rates having fallen from their peak, LCP said the trend appeared to have continued.

“There is increasing evidence that taking out a mortgage which runs past pension age is an entrenched feature of the mortgage market rather than a temporary blip,” said Steve Webb, a former pensions minister who is now a partner at LCP.

“This has profound implications for retirement planning, as it is likely to mean that savers may end up using already inadequate pension pots to clear a mortgage balance.”

The temptation for young homeowners is obvious. A longer mortgage term would reduce monthly repayments.

But with the average age of first-time buyers rising – it now stands at nearly 34 – the question of how people will be able to afford mortgage payments when they hope to retire becomes increasingly important.

UK Finance, the banking and lenders’ trade body, said only 3% of mortgage-holders were currently paying off a mortgage after the age of 65.

While many young homeowners have chosen longer mortgage terms to make repayments more manageable, they may opt for shorter terms in the future if their salaries improve or they move house.

That is why UK Finance expects only a small fraction of the mortgages taken out now to ultimately go into borrowers’ retirement years.

However, it does also raise the prospect of some people having to work longer until a mortgage is paid off, or they may choose to downsize.

Lenders set limits

Lenders are relatively flexible on allowing people to take out these longer-term mortgages, but there are constraints, according to David Hollingworth, from mortgage broker L&C.

“There will often still be maximum age limits at the end of the mortgage term and lenders will need to be sure that the borrowing will be affordable,” he said.

“That will require borrowers to show that their post-retirement income is adequate.”

Affordability checks became stricter after the financial crisis of nearly 20 years ago, with lenders needing proof that mortgage applicants could cope with rising interest rates.

The reality for many people is that getting any kind of mortgage remains unaffordable.

Data published earlier in the week shows the dynamics of renting and owning, and their effect on financial strains and life satisfaction.

“The proportion of people renting privately doubled during the 2000s, and while it has levelled off at around a fifth of households, or a third in London, we’re seeing people renting later in life,” said Sarah Coles, from investment platform Hargreaves Lansdown.

“Even when people reach their late 50s and early 60s, 11% are still in private rentals.”