20 January 2016, 00:00
Over 50s turn to pension freedoms to pay off mortgage
• Almost two million have an interest only mortgage they intended to pay off with an endowment policy, which is now going to leave them short
• One in 14 have no idea how they are going to meet the shortfall
• One in four think they will have to sell their home to clear their debt
Many people approaching retirement are finding dreams of an exotic holiday or new car beyond their reach, as around seven million* over 50s are still paying off their mortgage, according to research by the Saga Equity Release Advice Service**.
Despite working hard and saving all their life one in three over 50s still has a mortgage and on average they will need to find £50,000 to own their home outright and be mortgage free. While many still have years of working life to chip away at their debt, one in seven people in their 70s are faced with having to use their weekly pension to pay off what’s owed; instead of using it to enjoy their retirement as they had planned. On average these people have £40,000 left to pay.
Underperforming endowments could be to blame as around 1.8 million over 50s with an interest only mortgage say they intended to pay it off with an endowment policy but this is not going to be enough to pay their mortgage off in full. These people are being left with an average shortfall of £34,500 and worryingly one in 14 people say they don’t know how they are going to pay it off.
While some people are left in financial turmoil trying to find a way to clear their debt, one in five over 50s, about 360,000 people, with a mortgage shortfall are thinking of taking advantage of the new pensions freedoms and use their pension lump sum to clear their mortgage debt. They need to consider this carefully as they may underestimate how much money they will need for everyday living in retirement.
Some over 50s are using their life savings (23%) or other investment products (7%) to bridge the gap. However, one in eight say they realised their endowment policy was not going to be enough to clear their debt and have been extending their mortgage term to give them longer to pay it off.
And despite spending a lifetime investing in the fabric and memories of their family home, one in four say they are worried they will have to sell their house to get out of the red.
However, this doesn’t have to be the case as the Saga Equity Release Advice Service can help some people unlock the cash in their home so they can remain living there and not have to worry about making monthly payments.
Alex Edmans, head of retirement, Saga Personal Finance, commented: “When these people got on the property ladder all those years ago they never dreamed they would have to use their pension to pay off their mortgage. Their pension pot was supposed to be used to help them do all the things they wanted to do but never got round to when they were working or looking after their family.
“We’ve seen more and more people use our equity release advice service to clear their debt over the years and unlock more cash in their home to help them fulfil their retirement dreams. However, people need to consider all their options and speak to their family or loved ones before rushing into anything.”
Notes to Editors
*Populus interviewed 1,457 people aged 50 and over online between 7th and 16th August 2015. Results have been weighted to be representative of all GB adults. Populus is a member of the British Polling Council and abides by its rules. For more information visit www.populus.co.uk.