More than 1m mortgages taken out in the past three years extend beyond the borrower’s state pension age, prompting fears that young home buyers are gambling with their retirement income.

An FOI request revealed that the fastest-growing group affected are in their 30s, taking out ultra long mortgages in a desperate attempt to get on the housing ladder.

Former Pensions Minister Steve Webb warned that the borrowers may not be able to afford to service a mortgage once they retired and could be forced to raid pension savings to clear their loans.

That would leave them with less to live on in old age.

Mr Webb, partner at pension consultants LCP, made the FOI request based on mortgage data supplied by the FCA to the Bank of England.

He said: "Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests.

“We already know that millions of people are not saving enough for their retirement and if some of that limited retirement saving has to be used to clear a mortgage balance at retirement they will be at even greater risk of poverty in old age.”

Number and percentage of new mortgages in Q4 of each year which extend past state pension age.

Source: LCP/Bank of England FOI request

Mr Webb said that multiplying the quarterly figures by four to get annual figures suggests that over the last three years more than 1 million new mortgages have been issued with end dates beyond state pension age.

The next table shows the number of people in each age group in 2023 Q4 taking out mortgages which run past pension age and how that number has increased over the previous two years. It shows a 29% increase in the absolute number taking out new mortgages which run on past pension age.

Increase in mortgages running past pension age

Source: LCP/Bank of England FOI request

Separate information supplied by the Bank of England revealed that just under a quarter (23%) of new mortgages to people in their thirties ran past pension age but now it is around 2 in 5 (39%). 

Mr Webb said that although a mortgage taken out in someone’s thirties, perhaps as a first time buyer, is highly unlikely to be someone’s last mortgage, the risk to retirement depends on what happens over the course of their working lives and whether or not they are able to shorten the term.  

He said that particular concerns were:

• Those who have mortgage debt at retirement may use their modest auto enrolment pension pots to clear the debt, leaving little for retirement itself and jeopardising their later life standard of living;
• In the past, when people mostly paid off their mortgage before pension age, they could spend their final years in work boosting their pension pot. Even if mortgages only run to pension age (and not beyond), it deprives people of a period pre-retirement when they might have paid off their mortgage and be able to boost their pension;
• Mortgage lenders can have little certainty as to the future pension income of someone in their thirties today, so cannot know if borrowers will have enough income in retirement to service a mortgage debt.
• Growing numbers of people have dropped out of the labour market before reaching pension age which puts extra pressure on keeping up payments on a long-term outstanding mortgage.