42% of new mortgages extend beyond state pension age

Bank of England data shows that 42% of new mortgages granted in the last quarter of 2023 are due to run beyond the borrower's projected state pension age, according to figures obtained through a freedom of information request by the pensions consultant Sir Steve Webb¹. The same data records 31% in 2021, a rise of 11 percentage points over two years¹. Webb estimates that more than a million such mortgages have been granted in the last three years¹.

The shift sits alongside a broader move towards longer mortgage terms. Before the Bank of England base rate began rising, 9% of first-time buyers were taking out mortgages lasting 35 years or more; by the time the base rate peaked at 5.25%, that figure had more than doubled to 20%, according to UK Finance data¹. The base rate rose from 0.1% to 5.25% between December 2021 and August 2023¹. Analysis of Moneyfacts data shows more than eight in ten fixed-rate mortgages on the market are available with terms of up to 40 years¹.

Lenders set their own maximum age limits for repayment. The largest lenders allow borrowing up to the age of 70, 75 or 80¹.

Halifax will allow a mortgage to be repaid using employment income up to the age of 75, but may take projected retirement income into account up to the age of 80¹.

On cost, Which? modelled a £250,000 purchase with a 10% deposit and a two-year fixed rate at 4.86%¹. Monthly repayments in the first two years would be £1,297 over 25 years, £1,188 over 30 years, £1,116 over 35 years and £1,064 over 40 years¹. In the same example, a borrower on a 40-year term would theoretically pay £156,000 more in interest than one on a 30-year term, assuming they stayed on the lender's standard variable rate for the whole term¹.

Why it matters for households

A mortgage that runs past state pension age means the repayment has to be met from retirement income rather than wages, unless the balance is cleared earlier. Webb has raised concerns that some borrowers will need to draw on pension savings to clear a mortgage, leaving less to live on in old age¹. He says that in the past most people had paid off their mortgage before pension age, allowing them to spend their remaining working years boosting pension savings¹.

Longer terms also change how much of the loan is repaid early on. On a longer-term mortgage, a smaller share of each payment goes towards the capital in the first few years, with most going towards interest, which leaves borrowers more exposed to negative equity if house prices fall¹. The Which? modelling indicates that a 40-year term costs more in total interest than a 30-year term over the life of the loan¹.

The figures cover mortgages granted in the last quarter of 2023, so they describe loans already taken out rather than projections for future lending¹. The 2021 comparison point is the only earlier year given¹.

What happens next

No further Bank of England data release on this measure has been reported. Which? notes that borrowers can remortgage at a lower loan-to-value as they build equity, which may open up different rates and the option of a shorter term, and that most lenders allow overpayments of up to 10% of the balance a year without a fee¹. Whether individual borrowers do either is not recorded in the data.