Pension changes won’t prevent interest only mortgage crisis
by Alexander Beard, on Sep 9, 2014 5:02:48 AM
Access to pension pots announced in this years’ Budget will not stem the looming interest-only mortgage crisis, Age UK is warning. From 2017, 40,000 interest only mortgages owned by borrowers aged 65 and over will mature every year. Interest only mortgage borrowers believe their average shortfall will be just over £22,000. But the latest estimate by the Financial Conduct Authority shows that nearly half of people with these mortgages will still owe £50,000.
The average pension fund from which to buy an annuity is £36,800; significantly less than the debt figure. Whilst being able to access your pension fund to repay a mortgage may be a useful option for some people, pension reform is not on its own the answer to the imminent interest only mortgage debt crisis. Age UK believes that the new proposals to give people access to all their pension savings without having to annuitise should not be seen as a green light for financial institutions to automatically target pensions to recoup debt.
Caroline Abrahams, Age UK’s Charity Director, said:
‘Pensions are the nest eggs we build up for later life when our income falls. For many of us, this money is all that we have to supplement the State Pension and allow us to live more comfortably. It’s important that people are not put under pressure to use these savings to settle outstanding mortgage debt if they have other options, such as extending the mortgage.’
Despite the rising State Pension Age and the growing numbers of older people working, many lenders have reduced the age borrowers can be when their mortgage matures – 75 is typical. Age UK believes affordability, not age, should determine whether someone is given a mortgage.