Would you want to be paying your mortgage after you retire?
Our grandparents, and possibly great-grandparents, felt lucky to be able to afford their own homes following the introduction of the mortgage. Though these long-term loans were sometimes granted pre-World War 2—usually to purchase a piece of land for building upon—it was in the 1950s and 60s that the mortgage became the favoured option for families, as opposed to renting a property. The security a mortgage offered, and the ability to spread such a large loan over a few decades, meant home-owning became a realistic proposition for the man on the street.
And, as mortgages became the norm, the country saw a huge surge in construction. After the Second World War there was a nationwide drive to rebuild towns and cities that had been destroyed. Property prices became affordable when the supply of housing stock neared demand, and also due to house-builders using prefabricated designs and cheaper materials.
Before long, home ownership became something we expected, rather than something aspirational to us.
Then there was the housing boom of the eighties, which saw some savvy entrepreneurs become successful property developers. Margaret Thatcher even encouraged people in council houses to take out a mortgage to buy their home (a move that eventually decimated the UK’s stock of social housing).
Fast forward a few decades. Together with the cost of living in 2022, house prices have now outstripped the average wage. Getting on the housing ladder is out of reach for many young people. The rich have bought second homes in tourist areas and remote villages, pricing out local families in the process. The demand for housing has now exceeded supply, which has pushed house prices up even further.
Today, it’s not unusual for a young person moving out of the family home to rent a property rather than buy it. Renting is also the norm for many families across the country who, on paper, are unable to afford a mortgage to buy the house they live in (even though, in many cases, their monthly rent is higher than what their mortgage payment would be).
The typical term for a mortgage is 25 years. Whilst this, in previous generations, meant a family’s mortgage was paid off before the wage earner(s) retired, this is not necessarily the case today. It’s becoming more common for people in their forties and fifties to take out a mortgage—such as those who didn’t get on the property ladder until much later in life after renting for years, maybe because it took them a while to establish their career or save a deposit, or because their first marriage broke down and they were forced to start again.
The reason why lenders, in the past, wouldn’t allow a mortgage term to exceed the borrower’s 65th birthday is the common belief that the mortgage-holder wouldn’t have enough income to meet their mortgage payments, as well as their bills, on their pension alone.
According to research, one in three borrowers believes they’ll still be paying off their mortgage after they retire.
How can these mortgage-holders feel okay about carrying this debt into their old age? How will they be able to meet their monthly payments with just their pension and savings to survive on? Maybe those surveyed felt confident about their pension provision; maybe they feel their income won’t drop wildly when they come to retire.
It’s entirely possible that the pensions of tomorrow will be better than those of today. In the past, people were left to make their own pension decisions; however, it’s now law for employers to include a workplace pension with other remuneration benefits. This move ensures young people entering the workplace begin contributing to their pension from day dot—and if they are paying into a pension pot from the outset of their career, maybe they will have enough income to pay a mortgage past the date they retire.
This article suggests that not paying off your mortgage before retirement was once considered ‘taboo’, but that, nowadays, there’s no such stigma.
There’s also been a notable change in our attitude to debt over the last few decades, and what we’re prepared to sacrifice when it comes to lifestyle. Having lifelong debt, like a mortgage or student loan, is something many people can justify if it means they have more disposable income whilst they raise their families and enjoy life whilst they’re still young. Strapping themselves and going without, just to ensure their mortgage is out of the way before they retire, is no longer the plan for every youngster. Live for today!
Our grandparents managed with whatever money they had; debt was simply not an option in their day. If they didn’t have the money for something, they went without it. In comparison, very few people today, of any age, are completely debt-free.
Of course, there are some people who have no plans to retire. I’m one of them. Whilst my faculties allow, I will work into my ‘old age’ and past the date I’m meant to retire. Even if I had the income, I’ve no desire to travel or ‘see the world’—a common aspiration for most people when they retire. That’s not my bag…and if the alternative is to simply sit at home and watch telly for days on end, I’d rather continue getting up and going to work. That doesn’t mean to say I would want to carry my mortgage into my old age with me—as my largest monthly bill, I’ll feel like a lottery winner when I no longer have to make these payments. I’d much rather spend that money on me and my family.
Many young people have little choice in the matter, however, depending on their background. If they haven’t been born into money, they will probably find it difficult to get on the housing ladder and will be forced to rent at first. They may well choose to start their families before taking out a mortgage, and therefore, a lifelong product may better suit their plans.
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