Almost half of people (46%) over the age of 55 who are paying off mortgages are worried about rising rates, continuing to meet repayments and how to pay their loans off in full, research from PensionBee, the leading online pension provider, suggests.
The research carried out in June indicates that three quarters of respondents over age 55 who have mortgages are worried about rising interest rates (76%, Table 1) and concerned about how they will manage their payments to the end of term (62%, Table 2).
Respondents aged over 55 with a household income of less than £30,000 were more worried about rate rises than average (83%) and also about managing repayments to the end of the term (72%).
One in five over 55s on interest-only mortgage deals
Worryingly, less than half of over 55 respondents said they are on capital repayment mortgages (42%, Table 4), while 40% said they are on ‘part capital repayment, part interest only’ and almost one in five (18%) of over 55 respondents with mortgages are on interest-only deals, meaning that when they get to the end of their mortgage term, they will have to have enough cash available to pay off the remaining capital balance.
Uncertain repayment plans
Almost half (46%) of mortgage holder respondents aged 55 or over admitted they are unsure how they will pay off their mortgage in full. The most common remaining mortgage balance was less than £50,000 (Table 10), however, a small proportion (6%) of respondents reported their balance exceeding £250,000.
Using a capital lump sum (22%, Table 9) was noted as the most common way respondents over age 55 were planning to pay off their mortgage in full, while using a pension (16%), selling the house (11%) or using equity release (5%) were other options being considered.
Becky O’Connor, Director (VP) Public Affairs at PensionBee, commented: “The current mortgage rate rise shock may be contributing to an abrupt rethink of retirement plans and causing worry and uncertainty among the population of older homeowners still repaying loans.”
Anyone hoping to wind down from work as they approach their pensionable years and who still has a mortgage to pay could face a significant reality check in the coming months. Their mortgage could suck away even more of their disposable income, potentially forcing them to work for longer.
Those on interest-only deals will not only face potential rate rises, but the additional headache of a looming deadline for repayment of their capital balances. Money they might have earmarked for repaying the capital at the end of the term might now need to go towards monthly repayments.
It’s worrying that almost half of respondents in this older age group are not sure how they will repay their mortgage in full. One in five are pinning their hopes on a capital lump sum, while one in six think they will use their pension.
People can access their pension from age 55 and can take 25% as a tax-free lump sum. With mortgage rates rising so rapidly, it may be tempting to tap the pension to pay off a home loan.
Having a mortgage that runs into retirement can be a problem, because repayments can mean people have to take more out of their pensions in the early years.
Anyone who is considering this must bear in mind the potential impact of using up tax-free cash early on in retirement and then running the risk of not having enough money later on to maintain enough income for a decent living standard.
Pensions are designed to provide this income. While it can make sense to use some of the pot to pay off mortgages, it’s good to be aware of what this can do to living standards in retirement.”
Working longer to pay the mortgage
Almost one-in-five (19%, Table 3) mortgage holder respondents over the age of 55 are not working, with 22% saying they work part-time and 59% working full-time. Looking just at respondents aged over 65 who have a mortgage, the majority of whom will also be in receipt of the State Pension, 65% said they are still working full-time or part-time, suggesting that the need to continue to repay a home loan keeps people in work for longer.
There was a correlation between employment status and repayment type, with full-time workers over age 55 more likely to be making capital mortgage repayments and unemployed people more likely to be making interest-only payments, which tend to be lower.
Later life rate rise expectations
Almost half (47%, Table 5) of homeowner respondents aged over 55 identified their current mortgage interest rate as between 2 and 4%, with 12% on a lower rate of 1 to 2% and 25% on a rate of 4 to 5%. Just over one in 10 said they are paying between 5 and 6%, and 5% said their mortgage rate was over 6% (Table 4 below).
Just over a quarter (28%, Table 6) of those surveyed noted that their current mortgage deal is coming to an end either this year or in 2024. The vast majority (76%) of over 55s expect their repayments to increase in the next few years - at a time in life when people ideally look forward to lower housing costs.
Appendix
Table 1: Are you worried about rising interest rates on your mortgage?
| % of respondents | |
|---|---|
| Yes, a bit | 36 |
| Yes, a lot | 40 |
| No not really | 15 |
| No, not at all | 9 |
Source: PensionBee, June 2023. Based on 1,000 responses from UK consumers aged 55+.
Table 2: Do you worry about managing your mortgage repayments to the end of term?
| % of respondents | |
|---|---|
| Yes, a bit | 39 |
| Yes, a lot | 23 |
| No not really | 25 |
| No, not at all | 13 |
Source: PensionBee, June 2023. Based on 1,000 responses from UK consumers aged 55+.
Table 3: Are you currently working?
| % of respondents | |
|---|---|
| Yes, full-time | 55 |
| Yes, part-time | 22 |
| No, I’m not working | 19 |
Source: PensionBee, June 2023. Based on 1,000 responses from UK consumers aged 55+.
Table 4: What type of mortgage repayments do you make?
| % of respondents | % of respondents working full time | % of respondents working part time | % of respondents not working | |
|---|---|---|---|---|
| Capital | 42 | 44 | 37 | 40 |
| Part capital and interest, part interest-only | 40 | 40 | 44 | 36 |
| Interest only | 18 | 16 | 19 | 24 |
Source: PensionBee, June 2023. Based on 1,000 responses from UK consumers aged 55+.
Table 5: What is your current mortgage interest rate?
| % of respondents | |
|---|---|
| 4-5% | 25 |
| 3-4% | 24 |
| 2-3% | 23 |
| 1-2% | 12 |
| 5-6% | 11 |
| 6+% | 5 |
Source: PensionBee, June 2023. Based on 1,000 responses from UK consumers aged 55+.
Table 6: When does your current mortgage deal come to an end?
| % of respondents | |
|---|---|
| 2026 or later | 44 |
| 2025 | 22 |
| 2024 | 18 |
| This year | 10 |
| Not sure | 6 |
Source: PensionBee, June 2023. Based on 1,000 responses from UK consumers aged 55+.
Table 7: Are you expecting your repayments to go up in the next few years?
| % of respondents | |
|---|---|
| Yes, a little | 39 |
| Yes, by a lot | 37 |
| No | 17 |
| Don’t know | 7 |
Source: PensionBee, June 2023. Based on 1,000 responses from UK consumers aged 55+.
Table 8: Are you worried about interest rate rises on your mortgage?
| % of respondents | |
|---|---|
| Yes, a lot | 40 |
| Yes, a bit | 36 |
| Not really | 15 |
| Not at all | 9 |
Source: PensionBee, June 2023. Based on 1,000 responses from UK consumers aged 55+.
Table 9: How are you planning to repay your mortgage in full?
| % of respondents | |
|---|---|
| Not sure at this stage | 46 |
| Use a capital lump sum from elsewhere | 22 |
| Use some of my pension | 16 |
| Sell the house | 11 |
| Use equity release | 5 |
Source: PensionBee, June 2023. Based on 1,000 responses from UK consumers aged 55+.
Table 10: What is your remaining mortgage balance?
| % of respondents | |
|---|---|
| Less than £50,000 | 42 |
| £50,001 - £100,000 | 29 |
| £100,001 - £150,000 | 14 |
| £150,001 - £200,000 | 6 |
| £200,001 - £250,000 | 3 |
| £250,000+ | 6 |
Source: PensionBee, June 2023. Based on 1,000 responses from UK consumers aged 55+.
