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Mortgage warning hits pensioners as half a million still owe thousands in debt

More than half a million retirees in the UK still need to pay off their mortgages, averaging tens of thousands of pounds each.

New research from the over 50s experts SunLife found that of the two-thirds (68 percent) that are homeowners, more than one in five (23 percent) are still paying off their mortgage.

While most (87 percent) of those with outstanding mortgages are still working, the research shows that 13 percent of those still paying off their mortgages are retired.

This means that of all retirees in the UK, one in 14 (seven percent) – the equivalent of just over 500,000 older people – may still be burdened with paying monthly mortgage payments.

According to SunLife, these retired mortgage holders still owe £33,627 on average, which, over a remaining five-year term at a rate of 5.25 percent (the current Bank of England Base Rate) on a repayment mortgage, would be a monthly payment of £638.

Mark Screeton, CEO at SunLife said: “According to our research, the average homeowner retiree has a home worth more than £320,000 but a household income of less than £30,000.

“This means that the vast majority are cash-poor and property-rich. And while most own their homes outright, around one in 14 still have a mortgage. So, for those people, a chunk of that relatively modest income is still being spent on housing, rather than on making the most of life in retirement.”

Offering a potential “solution”, Mr Screeton “For some of these people, it could make sense to tap into the equity that’s tied up in their homes.

“But for many, downsizing to free up the cash is not an option – maybe it’s too expensive, or they have emotional or physical ties to their homes and neighbourhoods. That’s where equity release, where suitable, could offer a solution.”

Equity release is a tax-free way for qualifying homeowners aged 55 and over to release some of the cash tied up in their home, without moving house.

According to SunLife, homeowners can typically release between 20 percent and 60 percent of the value of the property – and the older they are, the more they can release.

Any homeowner with a remaining mortgage will have to pay this off with the equity they release and then can do what they want with the rest. However, there are drawbacks to be considered.

Mr Screeton said: “So, let’s say a retiree has a home worth £327,020 and an outstanding mortgage of £33,627. If they were able to release 30 percent of their home’s value, that would be just over £98,000.

“Once they use this money to pay off their remaining mortgage, they’re left with more than £64,000 to do whatever they want with.

“Equity release is still a loan which accrues compound interest, but it doesn’t need to be repaid until you pass away or move into care permanently. This can free up retirement funds for those living on a pension income that’s being eaten into by mortgage payments.

“Even if you chose to make repayments to cover the interest on the equity release loan, these could still be considerably less than the repayments on a standard mortgage.”

However, it’s important to always seek financial advice before people can release equity. Equity release may reduce the amount of inheritance people can leave and affect their future financial options, including eligibility for means-tested benefits. There are also often arrangement fees and legal fees, and limited flexibility once a plan has been opted into.

Mr Screeton said: “Your advisor can help you work out whether Equity Release could be right for your needs and circumstances.”


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