Mortgage Borrowers Turn To Pensions To Clear The Debt


Around a third of homeowners over 50 years old approaching retirement expect to have to dig into their pension savings to pay off their mortgages.

Although 4 million homeowners aged between 51 and 65 have mortgages, fewer than two-thirds expect to clear their debt from regular monthly repayments.

While one in four expect to keep making payments after they have hit 65 years old, thousands more believe they will not have cleared their mortgages by the time they are 70.

According to research by financial group Just, 320,000 homeowners aged between 51 and 65 plan to divert pension savings to settle their mortgages.

Regular repayments not enough

Another 365,000 are hoping inheritances will pay the debt, while a similar number will cash in savings or investments to clear their mortgages.

Around 285,000 will downsize.

Just group communications director Stephen Lowe said: “Retirement looms ever larger as people head through their 50s and the good news is that many expect to have finished making mortgage repayments by the time they step back from work.

“But, under two-thirds expect to clear their mortgage purely through making their regular monthly payments alone. That leaves hundreds of thousands of people who expect to use other sources of funds such as savings and investments, pensions or inheritances to clear the loan, and some are planning to sell their house.

“It will depend on people’s own circumstances whether doing so is financial sense or financial folly. We would urge anyone thinking of taking pension money early to consider the implications on their retirement income carefully.

Pension income shortfall

But financial experts warn settling a mortgage from pension cash will leave many short of retirement income as they will not have the time to rebuild their nest-egg.

Just noted that research also revealed 40% of workers retire earlier than they expected due to ill-health or redundancy.

Steve Webb, a pension expert at Royal London, says before taking out pension cash, retirement savers should compare the mortgage interest rate against the rate of return of pension investments.

“Most mortgages have quite low interest rates and the savings won’t amount to much, ” he said.

“Some lenders also charge early repayment penalties. Many may find they are better off leaving the money to grow in their pensions rather than making withdrawals that are taxed as well.

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