Britons risk ‘diminishing retirement’ as extended mortgages could cost them £52,000 pension savings

Around 39 per cent of households are on track for a moderate retirement income as defined by the Pensions and Lifetime Savings Association, new data from the HL Savings and Resilience Barometer shows.

This puts a single person’s living costs at just over £31,000 per year and a couples at £43,100.

This is already a stretching target to reach, but these figures don’t include rental or mortgage costs.

Having to find the money to pay housing costs in retirement can put further pressure on a budget that may already be under severe strain.

Karen Noye, mortgage expert at Quilter told GB News: “Longer term mortgages can have significant implications for retirement plans particular for individuals in the UK who are nearing the end of their working lives.

“When retirees must continue making substantial monthly payments, their ability to save and invest for retirement is diminished, potentially leaving to a less secure financial future.”

Noye explained retirees often rely on fixed incomes from pensions, which may not increase in line with inflation. This can lead to a tighter budget and increased anxiety about managing their finances.

Additionally, the necessity of dedicating a significant portion of income to mortgage repayments can limit the funds available for travel, hobbies, healthcare, and other lifestyle expenses, thus impacting the overall quality of life in retirement.

Experts argue that if mortgage payments were swapped for pension payments in later life, it can mean an extra £52,000 towards one preferred retirement style.

Standard Life’s calculations highlighted the potential retirement boost if mortgage payments are swapped with pension contributions later in life.

Their analysis found that those who begin working on a salary of £25,000 per year and pay the standard monthly auto-enrolment contributions (five per cent employee, three per cent employer) from the age of 22, could build up a total retirement fund of £461,000 by the age of 66**, not taking inflation into account.

However, topping up contributions by four per cent for ten years from the age of 55, the age at which a 25-year mortgage term taken out at the age of the 30 would be paid off, could result in a total pot of £513,000 – £52,000 more than if no tops up were made.

In Q1 this year, there were 28,840 new loans advanced to borrowers who were aged over 55. The new loans were valued at £4.3billion.

Some £2.26billion of this lending was given to borrowers aged between 55-60 and £440m of new lending was to borrowers aged over 70, according to official figures by UK finance.

Mike Ambery, retirement savings director at Standard Life said: “There’s been a steep rise in long-term borrowing over the last couple of years, with people more likely to extend their mortgage term.

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“Interest rates have rocketed since the middle of last year and so it’s understandable that people are looking for longer mortgage terms to ease the monthly strain.

“For some it may not be possible, or even appropriate, to stick to a shorter mortgage term, however it’s worth considering the potential retirement impact of any decision. “