Hundreds of thousands of pensioners in the UK have still not paid off their mortgages, new research suggests.
Roughly 5 per cent of pensioners are estimated to still be making monthly mortgage payments – the equivalent of almost half a million people, according to a study by SunLife.
On average these retired mortgage holders owe more than £60,000, which is costing them £767.75 a month.
The average pensioner’s household income is just over £30,000, meaning 30 per cent of their entire income would be spent on housing.
Government data defines housing costs as unaffordable when they are more than 30 per cent of a household’s income.
The SunLife report surveyed more than 2,000 people over the age of 50.
It found that 69 per cent were homeowners, but more than one in five of those still have a mortgage.
The majority of people with outstanding mortgages were still working (86 per cent), but 14 per cent of those still making mortgage payments are retired.
Affordability will no doubt be a concern with some pensioners struggling financially, often relying solely on the state pension for income.
The full rate of the new state pension is £221.20 per week, or £11,502.40 a year, although this only applies to those who reached state pension age after April 2016.
Those on the older state pension are receiving £169.50 per week.
According to SunLife, the average homeowner pensioner has a home worth more than £330,000 but a household income of just over £30,000 – meaning they are “cash poor and property rich”.
Why has my pension been reduced after my tax code changed? Paul Lewis replies
Read MoreChief executive Mark Screeton suggested that pensioners who are still spending a large chunk of their income on mortgage repayments could tap into the equity tied up in their homes.
“But for many, downsizing to free up the cash is not an option – often it is too expensive, or they are emotionally tied to or physically dependent on their homes,” he said.
More than 20 per cent of pensioners surveyed said they don’t want to leave their home but fear they will struggle financially if they don’t downsize to a cheaper property.
Another option for these retirees could be equity release, which is a tax-free way for homeowners aged 55 and over to release some of the cash tied up in their home without moving house.
Homeowners usually release between 20 per cent and 60 per cent of the value of the property, and the older they are, the more they can release.
Screeton said if a pensioner had a home worth £332,867 and an outstanding mortgage of £63,643, they would get just over £133,000 if they released 40 per cent of their home’s value.
This would leave them with almost £70,000 to spend after the mortgage has been cleared.
“Equity release is still a loan, but one of the benefits for those pensioners living on a fairly small income that’s being eaten into by mortgage payments is that they wouldn’t have to make those monthly mortgage payments anymore,” Screeton said.
“Even if they chose to make repayments to cover the interest on the equity release loan, it could still be less than the repayments on a standard mortgage.”
However, there are some downsides including being unable to leave your home as inheritance whilst your debt will also be increased.
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