by Mark Johnston
Pensioners in Debt.
According to the English Housing survey by the Department of Communities and Local Government (DCLG) nearly 250,000 people over the state pension age have unpaid mortgage debt.
More than 1.3 million households aged 55 or over are still paying off their mortgage, which is the equivalent of 6 per cent of all households.
This is largely due to the fact that more than 25 per cent of all loans to older borrowers are interest only loans and these are due to be repaid or refinanced by December 2016.
Many Britons also fear that basic household cost such as utilities, rent and mortgage payments will rise in the coming months, further squeezing already tight household budgets.
Figures show that more than a third of households say they are paying more than they were three months ago.
Interest only mortgages were hugely popular before the banking crisis because payments were lower, but they were frowned upon by regulators now unless the borrower can demonstrate how the principle will be repaid.
So it seems that many older borrowers with interest only loans will now face serious refinancing debt. With the regulators cracking down on interest only deals and rates expected to rise in the next two years, this particular group is unlikely to be offered equivalent terms to those they are already on.
The Financial Services Authority (FSA) estimates that lenders are owed around £120 billion in interest only loans over the next 10 years.
Therefore pensioners should start to pay off their principle debt while they still have sufficient income to do so.
Ben Thompson, managing director of Legal and General Mortgage Club, said “the industry has a job to do to remind borrowers that they ideally have to repay their mortgage. What is depressing, but understandable , is that many who have seen their mortgage rates plummet have decided not to overpay the debt, instead spending the monthly savings elsewhere”.
It has however become increasingly difficult to borrow in to old age as lenders have tightened their criteria and lenders want to be sure that the mortgage will be affordable beyond retirement age.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said “in an ideal world, most us would undoubtedly prefer to have paid off the mortgage well before retirement. But the reality is that an increasing number of home owners are carrying on with their mortgages even after they have stopped working”.
Some experts believe that until these people pay back their debts our economy is going nowhere.
David Hollingworth of London and Country mortgages pointed out that “borrowing beyond retirement on a standard mortgage will require monthly payments to be made that will sap income”.
This could therefore mean that thousands of interest only borrowers over 60 could potentially be forced to sell their homes in order to repay their capital debt.
Annabel Schaafsma, a manager in Moody’s structure finance group, said “the most at risk group are those with equity of less than 20 per cent. Some will have to use their savings to repay the mortgage, others will just have to downsize”.
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