Halifax’s 2016 Generation Rent report has found that delays in getting onto the housing ladder are leading to increasing worries about retirement for many.
The research said that 34% expect to work beyond retirement age to pay off their mortgage and 44% are worried that they won’t be able to afford their mortgage payments in retirement.
Meanwhile, 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.
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.
Buying with a partner (49%) is the most likely measure a would-be first-time buyer is willing to consider to make owning a home more affordable. Extending a mortgage beyond 25 years is the second most likely measure (34%).
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%. Over the same period, the share of mortgages with a 20 to 25-year term dropped from 48% to 30%.
Halifax argues that, against this backdrop, it is unsurprising that 34% of young people don’t expect to pay off their mortgage until after their 60th birthday – 6% still expect to be paying their mortgage over the age of 70, while 8% expect to be paying their mortgage throughout their life.
46% believe they will be mortgage-free before they retire, falling to 30% of non-homeowners.
34% of respondents expects to work beyond retirement age to clear their mortgage. For current owners this is 28%, but for those not yet on the housing ladder, 39% believe they will be working later in life.
44% are worried that they won’t be able to afford their mortgage payments in retirement, while 45% are worried that the cost of their mortgage will mean they have to work longer.
Meanwhile, 51% are worried that paying their mortgage will hamper their ability to save for retirement.
Craig McKinlay, mortgages director at Halifax, said: “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.
“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.”
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.
However, just under a third of potential first-time buyers (31%) 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.
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.
McKinlay added: “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.
“A longer term will reduce monthly payments, but as homeowners 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.
“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.
“Home ownership clearly remains a key aspiration for young people and 2015’s strong first-time buyer numbers show the resilience of Generation Rent. Despite their concerns, they are becoming increasingly resourceful in their fight to reach the ladder.”
Robert Cochran, retirement spokesperson at Scottish Widows, added: “Our research tells us that 45% of people in their 30s and 40s are prioritising spending now, yet with younger generations expecting to be paying mortgages into retirement, it’s more important now than ever that people push retirement saving up their financial agenda and get a better understanding of how pounds in a pension pot translate into income in retirement to avoid facing a financial time bomb at the stage when they want to stop working.”
