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Why 50 may no longer be a golden age for homeowners
There was once a time when a person’s 50s were a golden age of fewer financial commitments and spoiling themselves before retirement. However, recent research suggests that time may be over.
Not too long ago, when you celebrated your 50th birthday you could probably also celebrate reaching close to the top of the career ladder and having a salary to match. Even better, you could put a fair chunk of that income towards treating yourself, as it’s likely your mortgage & credit cards would be paid off and your kids would have left home. Having a good wage and fewer financial commitments might even have given you the opportunity to save enough to retire early.
End of an era
However, it would seem those days are now over. Research* carried out for us recently revealed that, of the people we spoke to who had a repayment mortgage, nearly one in three won’t have finished repaying it by the time they reach 61 years old. More worrying still, almost one in 20 mortgage customers will still have money outstanding when they’re aged over 70.
This may not seem like a lot, but it actually equates to more than one million Brits who will still be repaying their mortgage when they’re in their 70s. So much for the 50s being a golden age of no financial commitments and early retirement!
Working for longer
There’s no longer an enforced retirement age in the UK (with the exception of certain professions) and most people are free to continue working for as long as they want to. However, in an ideal world the age a person retires would be their choice, and not a decision based on how much they have left outstanding on their mortgage.
Unfortunately, if a homeowner won’t finish repaying their mortgage until they’re in their 70s, they have very little choice but to keep on working. As most mortgages make up a sizable chunk of the household outgoings, it’s unlikely it will be covered by a pension or savings.
Taking advantage of low rates
However, it’s possible to reduce the time it takes to pay off a mortgage and the number of months you’ll be making repayments for.
The Bank of England’s base rate is currently just 0.5% - and it’s been that way for five years. Because most mortgage providers set their own interest rates very close to this, it means that the interest attached to many mortgage products is currently pretty low.
There are a couple of ways to use this to your advantage. The first is to look into making overpayments on your mortgage. Some providers allow you to do this (always check first), and paying just a little extra every month could ultimately knock years off your mortgage. Another is to consider fixing your mortgage.
Some experts now think that the Bank of England will increase the base rate within the next year, and when it does, mortgage providers will follow its lead. However, if you fix now you have the peace of mind that the interest you pay won’t rise with it until your fixed term comes to an end. And while your mortgage interest rate is low, you can make overpayments and reduce your outstanding balance.
You might only knock a year or two off your mortgage, but that could be the difference between enjoying a golden retirement and still going to work when you’re in your 70s.
*OnePoll questioned a nationally representative sample of 1,822 adults aged 18 and over between 25th February and 7th March 2014. Figures have been extrapolated to fit ONS 2013 population projections of 50,371,000 UK adults.