by Mark Johnston
Historically UK borrowers have been able to save a nice nest egg ahead of retirement once they have paid their mortgage off. In the past home owners have taken out mortgages on average over a 25 year period. After this time those who had paid their mortgage off were able to concentrate on saving up for their retirement. The extra money that was gained from having no mortgage repayments meant that a significant amount could be saved up before retirement.
New research which was published recently showed that this period is shrinking for many UK home owners. This is a major concern for many that are replying on their period to save for their retirement. The knock on effect means that many would be forced to delay retirement and work for longer.
The research highlighted that home owners that took out their mortgage back in the 1960’s were able to pay off their mortgage by 1980’s leaving around 20 years in which they could save for retirement whilst working.
Rising house prices outside of inflation and salary increases has meant that getting on the property market is much more expensive. This has meant that many home owners are taking out mortgage on much longer terms and later on in life. Both of these impact the length of time borrowers are mortgage free. Those of us who have taken out a mortgage in the last 10 years will have half the time debt free with only ten years from the time our mortgage is paid off until retirement to save for old age.
The worry is that many will struggle to save enough money for a comfortable retirement, those that have not yet even got onto the property market may well find themselves getting to retirement age before their mortgage is paid off in full. This would lead to a situation where home owners would have to carry on working well past retirement age just to keep a roof over their head. The extreme of this would be what happens in some countries like Japan and Hong Kong where mortgages last beyond one persons lifetime and are passed on from parent to child.
The report also pointed out the UK’s lack of savings where those over the age of 55 only save on average around £88 per month which falls well sort of what would be needed to have a comfortable retirement.
Reza Attar-Zadeh, director of savings and investments at Santander said: “For many people the period when they are still in employment but mortgage-free represents a golden opportunity to get some cash in the bank in preparation for retirement. “This window has more than halved since the 1960s and the opportunity to save is getting smaller and smaller. Our advice to people is to start saving as early as possible, even if they put away small amounts every week or month.”
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