Many first time buyers in UK expect to be paying for mortgage into retirement

A third of young people in the UK expect to still be paying a mortgage beyond age 60 with over half worried that they would not be able to afford the payments when retired, new research shows.

Rising house prices are an increasing concern to people trying to get on the housing ladder but many are still determined to own their home, according to the latest annual Generation Rent Report from lender the Halifax.

Overall some 34% expect to work beyond retirement age to pay off their mortgage, 44% are worried that they won’t be able to afford their mortgage payments in retirement and 51% are worried that paying their mortgage will hamper their ability to save for retirement.

Despite this, the report reveals that home ownership aspirations remain as strong as ever and that those late to the ladder are taking a range of measures to ease the financial burden.

Indeed, the numbers of first-time buyers have recovered strongly in recent years, with 300,000 taking the first steps onto the property ladder in 2015. The average age of a first time buyer is now 30.4 years, nine months older than in 2010.

Some 49% of aspiring first time buyers believe that buying with a partner is the most likely measure to consider to make owning a home more affordable while 34% say it is extending a mortgage beyond 25 years.

In 2007 the proportion of first time buyers taking up a 35 year mortgage stood at 16%. By 2015 this figure had grown to 26% and over the same period, the share of mortgages with a 20 to 25 year term dropped from 48% to 30%.

As well as 34% expecting to still be paying a mortgage aged 60, some 6% still expect to be paying their mortgage over the age of 70, while 8% expect to be paying their mortgage throughout their life. Only 46% believe they will be mortgage free before they retire, falling to 30% of non-home owners.

The research also shows that 34% expect to work beyond retirement age to clear their mortgage and while for current owners this is 28%, for those not yet on the housing ladder 39% believe they will be working later in life.

Some 44% are worried that they won’t be able to afford their mortgage payments in retirement and 45% are worried that the cost of their mortgage will mean they have to work longer while 51% are worried that paying their mortgage will hamper their ability to save for retirement.

‘Despite the barriers and the understandable concerns, it’s very positive to see that younger generations are still striving to get onto the housing ladder, with more than 300,000 taking that first step in 2015,’ said Craig McKinlay, mortgages director at the Halifax.

‘This recovery has been fuelled by a number of factors, including an abundance of successful Government initiatives and the affordability of monthly mortgage repayments due to the continuing low interest rate environment and some very competitive deals. Although many of those late to the ladder will inevitably still be paying their mortgages later into life, they are increasingly taking a range of measures to ease the burden,’ he added.

The concerns of young people trying to get on the ladder have been well documented and the Generation Rent report has repeatedly shown that raising a deposit has been the consistent barrier for the majority of would-be home owners.

However, the 2016 report tracks the emergence of high property prices being perceived as an increasingly large barrier to purchasing a first home, rising to 60% in 2016 compared to 52% in 2011. The average price of a first property is now £196,801, rising from £134,889 in 2010.

That said, 31% of potential first time buyers say that house prices won’t impact on their plans for home ownership, with a further 30% agreeing that they will not change their plans to purchase even though they expect prices to continue to rise.

The report says that this may be due to the fact that most looking to take the first step on the market still believe it will take longer to save for a deposit. Non-owners in this year’s report say they would be prepared to save for around 5.5 years for a deposit, increasing from 5.35 years in 2015. The average deposit paid by first time buyers increased by 13% in 2015 to £32,927.

‘Borrowers should be cautious when looking to extend their mortgage beyond 25 years. This will not only increase the overall cost of the mortgage, but could have a potential knock on impact on their quality of life in retirement,’ said McKinlay.

‘A longer term will reduce monthly payments, but as home owners build up equity they should look to reduce this term or make overpayments to ensure that the dream of owning their own home doesn’t turn into an unnecessary nightmare in later years,’ he explained.

‘A £50 monthly overpayment to a mortgage of £140,000 spread over 25 years will reduce the term by two and a half years and save more than £7,500,’ he added.