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The homeowners walking into a pension crisis

With people buying their first property later, pensions are being overlooked – so what should homeowners do?


by Michelle McGagh on Sep 05, 2012 at 11:01

The homeowners walking into a pension crisis

A decade of unprecedented house prices rises has resulted in people buying their first property later as they struggle to scrape together increasingly large deposits.

Although it is harder to get on the ladder, there has been some respite for those who get there as interest rates on fixed and variable mortgages have fallen. This means that typical monthly mortgage repayments for a first-time buyer with a 20% deposit have decreased to around 29% of take home pay, down from 40% before the financial crisis, according to figures from Nationwide.

Mortgages are getting longer

However, borrowers are trying to reduce their repayments even further by taking out longer mortgage terms.

Robert Gardner, Nationwide chief economist, said: ‘In practice this decline [in repayments] is slightly more pronounced than this. Borrowers, especially first-time buyers, have been increasing the term of their mortgage in recent years.

‘The average term for first-time buyers is currently 28 years, up from 25 years over the 2005 to 2007 period. While this increases the total amount repaid over the term of the loan, it lowers the monthly repayments.’

Impending pension crisis

With the average age of a first-time buyer standing at 29, according to Nationwide, and the average mortgage term 28 years, you don’t have to be Einstein to work out that the average first-timer will be 57 by the time their mortgage is paid off. The Council of Mortgage Lenders also places the average first-time buyer at age 29, but for those buying a property unassisted the average age soars to 37 – meaning they would be 65 by the time they have paid off their mortgage.

At 65 most people see themselves retiring, and although they may just retire mortgage-free, the increased mortgage burden could see pension saving become uneconomical or pushed to the bottom of the list as people try to pay off the mortgage.

Jason Witcombe, a director of London-based independent financial advice firm Evolve Financial Planning, said there was ‘definitely a trend’ for older people to still have a mortgage coming up to and even in retirement.

He said the ‘combination of high house prices and high day-to-day expenses like fuel, food and taxes puts pressure on household finances’, meaning people put getting on the property ladder at the expense of other savings.

‘The trouble is that people are stretched and their mortgage is taking up most of their income – there is trouble brewing, particularly if mortgage rates go up there will be a problem.

‘However, I do not think there is a problem extending your mortgage terms to 28 years if you expect to work longer. What you will find, though, is that people remortgage at 25 years each time.’

Get ready to downsize

The lack of pension saving means homeowners will have to become more comfortable downsizing in retirement and using the equity in their property to provide income.  

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18 comments so far. Why not have your say?

S. Brown

Sep 05, 2012 at 17:29

hasn't this been happening for years. Huge interest rates meant no saving at all even with a modest mortgage. Then putting children through university and, then redundancy when saving could have happened. Nothing ever changes.

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Dislexic Landlord

Sep 05, 2012 at 17:32

I think one of the main problems with pensions is there public imige the bad press has done nothing to help

at least the ones who can buy a house will have an asset to sell goodness knows what a house will be worth in 25 years time

Pensions have been a problem for a very long time and the younger folks just dont see it as a priority Im sorry to say

My own son has his own bussiness and he is sucsessfull he is 26 and has no pension provision

I spoke to him at lenth about the fact and all I got was why do I need a pension when I have got what you leave me

How do I answer that ind he may get a shook if I see the Lot

Only Jokeing LOL

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A Vent

Sep 05, 2012 at 19:01

I would not bother with a pension as the govt change the rules all the time, and then take some of it if necessary( ie Ireland).

with base rate at .5%.... nobody will have a pension as there will not be any return. all assesments have been made at 7 % groth pa!

Keep your own money in your name.

isa is in nominee Accts. . this will be used by the custodian ... if they go bankrupt,

with the benediction of the will loose all you saved.

at least you can leave in your house.

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Sep 05, 2012 at 19:39

What A Vent is mentioning about the risk to ISA accounts is a bombshell.

Why is no body writing about it? And what about all the other nominee stockbroker accounts?.

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A Vent

Sep 05, 2012 at 20:37

certificates only.

go to jim sinclair mineset website and read all

Best wishes

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A Vent

Sep 05, 2012 at 20:53

go back to august posts to find what you re looking for

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Sep 05, 2012 at 21:25

And it doesn't take an Einstein to work out that only a very small percentage of mortgagees go the full term to pay off their mortgage so the whole article is a load of rubbish.

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Sep 05, 2012 at 21:36


I dont think so. Many people I know are spending all their money on living expenses. Retirement is a distant dream to sort out later. Even if they do pay off the mortgage early its to late to put aside enough to pay for retirement.

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Sep 05, 2012 at 22:00

Agreed Dogdays even if it's all a bit of a short term view.

But my point was that the article advanced from a false premiss. Namely that all people go the full term on their mortgage. This is false. Ergo the conclusions are suspect.

That's all.

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Anthony O' Grady

Sep 05, 2012 at 22:22

What the content of this article illustrates, is that the bidding up of house prices to artificially high levels by irresponsible borrowing (and irresponsible lending - lets not forget our spiv buddies) benefits nobody in the long term. House prices should and will fall a lot further, once the artificial props currently in place disappear.

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Sep 06, 2012 at 07:36

Theatre tickets SHOULD be a lot cheaper. But people are willing to buy them. So they will stay artificially high.

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Sep 06, 2012 at 08:27

I dont know how I feel at the moment being early 30's but I have always thought, when the time comes in 30 or so years, I would need to sell my house to keep a standard of living or to pay for care etc as I get to old.

I know people would prefer to leave their home to their children, but sometimes this is not really an option.

I live in hope that I will have a good enough pension to allow to stay in my home and live the retirement I want. However I have accepted the fact, that my home is just a savings pot, that one day I am going to cash in on to support my wife and I, and by the time I get to retirement, I would not be suprised if the retirement age is 70 plus!

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Sep 06, 2012 at 10:17

S G. I am about now where you think you will be in 30 - 40 years. I did all the usual pension stuff. To cut a long story short my advice is to forget wasting money on commercial pension providers and "advisers". I came through the Equitable Life fiasco. A 250 year old Life company ruined by an actuary pretending to be a businessman. It will happen again believe me. Meanwhile the pension funds are at the mercy of government robbers like Gordon Brown and their own parasitic management who leach off your money in "fees".

My advice (for what it's worth) is instead to accumulate your own income providing assets in the next 40 years to keep you in retirement. Rented houses (very cheap at present and yielding upwards of 6-7%). Business interests paying you a wage. A portfolio of stocks and shares managed by you and not by a parasitic "adviser". Cash savings. Etc Etc.

And remember you can't live in a pension or pass it on to your heirs. When you buy an annuity the money is gone. All you have is an income stream from a Life company which might go bust anytime.

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Sep 06, 2012 at 10:35

@ Medved,

I am slightly luckly at the moment, as I am in a final Salary Pension scheme for however long it lasts! I have been in it a while so have a nice little pot saved up. I also have the benefit that my employer contributes 3 times the amount I do. I also get life cover through it.

But I do understand your points......

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Sep 06, 2012 at 11:56

Ah ok S G. From what you wrote it seemed that you did not have such a comfortable cushion. Nevertheless IMO you should never underestimate the ability of governments to change the law during that time. Especially some Stalinist regime which the fools in this country are not incapable of electing. But good luck and well done !!

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Sep 06, 2012 at 14:15

At the moment it looks comfortable, but I am betting it will all change in 30 something years. So thats what I am trying to prepare myself for!! With covering all other aspects of life like family etc...

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Simon Taylor

Sep 07, 2012 at 15:43


Theatre tickets are priced according to the market. There is no politically controlled system - such as the Town & Country Planning Act - to restrict supply and there is no lender with an implicit taxpayer-backed guarantee offering unlimited lending.

Houses have been exposed the toxic combination of both. There is no free market in housing.

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Sep 07, 2012 at 19:17

Simon. Don't get too serious.

The comment was simply meant to illustrate that thinking a commodity is "overpriced" has no relevance to it's real pricing which is determined by other factors unrelated to personal opinion of what might be "fair" or "equitable". Same with theatre tickets and houses.

As for the economics of theatre (actually cinema but same principle) ticket pricing (which you seem to regard as a "free" market) you might be entertained by "Why Do All Movie Tickets Cost the Same? " By Derek Thompson

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