According to recent data, approximately one-third of those with a mortgage do not believe they will be able to pay it off by the time they reach the age of 65. This revelation coincides with HSBC’s decision to increase its maximum mortgage term to 40 years, following in the footsteps of other major lenders. The chaos in the home loans market has resulted in many UK residents facing significantly higher costs, leading them to consider extending their mortgage term in order to lower their monthly payments.
While many mortgage products offer a standard maximum term of 40 years, some lenders have been reluctant to provide customers with that length of term. This week, however, HSBC announced that it will be extending its maximum term from 35 to 40 years. The bank stated that this decision was made to make mortgages more manageable, with lower monthly repayments, ultimately making home ownership a reality for its customers.
Lengthening the duration of a home loan may reduce monthly repayments, but it also means paying more interest over time due to the slower reduction of the mortgage balance. With the average age of a UK first-time buyer standing at 32, it is possible that a significant number of homeowners will not be able to achieve a mortgage-free status until their 70s.
While the allowance for borrowers to increase their mortgage term may assist many individuals in dealing with current affordability challenges, it also suggests that the aspiration of a debt-free retirement is becoming increasingly unattainable for millions of people.
A recent study conducted by insurer and retirement specialist LV= revealed that 32% of mortgage holders do not believe they will be able to pay off their home loan by the age of 65. Interestingly, the research also found that 10% of retirees still had mortgage debt when they stopped working, with an average outstanding debt of £38,000. Out of those who retired with outstanding home loan debt, 63% had to pay it off with their pension.
David Stevens, the director of savings and retirement at LV=, commented on the situation, stating that high inflation combined with longer mortgage terms means that more individuals will be obligated to continue paying off their mortgages during retirement. This could result in less discretionary income for pensioners to spend on the activities they had envisioned for their retirement.
HSBC’s new 40-year term applies to both its residential repayment and buy-to-let mortgages. It is currently available to those who secure one of HSBC’s deals through a broker, and from September 13th, it will be available to customers applying directly. Additionally, any extra borrowing, whether standalone or in conjunction with a remortgage, can now be arranged over a 40-year period.
Nicholas Mendes, a mortgage technical manager at the broker John Charcol, praised HSBC’s decision, stating that extending the term allows mortgage holders to mitigate the impact of higher rates on their payments. Mendes also noted that HSBC’s move brings it in line with most competitors in the market.
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