One in ten over-40s planning to raid their pension to repay their mortgage

Posted 9 September 2015 by Nick Parkhouse

A new survey has revealed that one in ten homeowners aged over 40 is planning to use their retirement savings to repay their mortgage. The worrying figures show that hundreds of thousands of people intend to use money earmarked for their pension to repay their home loan, leaving many families short of retirement income.

The survey shows that over 600,000 people intend to use new pension rules to free up cash to repay their mortgage.

631,000 people intend to repay their mortgage using their pension pot

A new survey of 3,000 homeowners has found that 10% of 40- to 70-year-olds - equivalent to 631,000 adults - plan to use part or all of their retirement savings to clear the loan on their home, potentially leaving them short of pension income.

Many thousands of homeowners currently have an interest-only mortgage, meaning that they have no specific repayment vehicle in place to repay the debt. Now, changes to pension rules that allow retirees to take lump sums from their savings could result in thousands of people using this cash to pay off their mortgage.

A further one-in-ten homeowners admitted to relying on an inheritance to repay the outstanding balance on their property with the rest saying they hope to clear their home loan through monthly repayments and lump sum contributions from savings.

Andrew Megson, of specialist insurance firm Partnership, which conducted the study, said it was “shocking” that so many people are relying on their pension to pay off their home loan. He added: "While a debt-free retirement is the ideal, some people may find they reach traditional retirement age with an outstanding balance. Using their pension may well seem like an option but it is not the only option as working longer, downsizing or considering a lifetime mortgage may be more appropriate.

"Ideally, pension savings should be used to provide an income in retirement, and with the state pension only providing a very basic safety net, making this choice could lead to hardship in later life."

A third of mortgages extend into a borrowers' retirement

The survey comes after recent figures revealed that millions of homeowners will still be burdened with a mortgage well into their retirement.

Data from the Council of Mortgage Lenders (CML) showed that a third of mortgages agreed in 2014 extended beyond the borrowers' 65th birthday compared with just a quarter in 2006. One-in-five home loans extended beyond a borrower's 70th birthday.

The CML also revealed that a third of homeowners now take out a loan for longer than the traditional 25-year term, compared with one in ten a decade ago.

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