Middle-aged warned of misery over mortgages
Longer-term repayment deals threaten to push homeowners into poverty in retirement years
Published 04/12/2016 | 02:30
Middle-aged homeowners who take on a 30-year mortgage - which can push repayments into their 70s - risk a poverty-stricken old age.
Financial experts warn that as the country's pension crisis deepens, the 'double whammy' of also having high home loan bills will tip many older couples into huge debt.
Latest trends confirm the growth of mortgages with a 30-year repayment liability - because a growing number of new house purchasers are incapable of meeting the standard 20-year repayment programme.
Latest Central Bank figures show the age of the typical first-time buyer continues to rise. In 2006 it was 29 - but by last year it had risen to 34.
Experts said this could rise even more dramatically in the next few years, as average income levels become increasingly out of line with house prices in Dublin and other key urban centres.
This means that many borrowers who sign up for 'super term' mortgages, which can take up to 35 years to repay, will be saddled with a lifetime of debt, which may run well into their retirement years.
This type of mortgage is particularly tempting in the short term as it stretches the loan out over a longer period, thereby reducing the monthly repayment figure. However, the overall amount of interest that the borrower must repay is considerably more than if it was a traditional 20-year loan.
While no centralised statistical data has been compiled by agencies such as the Central Bank, a number of financial experts said there was "clear-cut evidence" of hard-pressed homeowners "stringing out" their mortgage repayment deals for a minimum of 30 years.
Property expert and market commentator Philip Farrell said that up to now the "cut-off point" for repayments was between the age of 68 and 70. "But that's going to come under severe pressure because people are living longer. The average age when a mortgage is finally paid off is increasing all the time," he said.
"Normally it would be 65, but I see that figure increasing as the average lifespan increases. The cut-off point age is likely to creep up to 71, 72 and 73 over the coming years.
"Another factor which people should take into account is that many pension pots may be less than expected."
Farrell warned that a combination of financial pressures would mean a growing number of older borrowers would have no option but to remain in the workforce. "Of course many people are also able to work longer because of medical advances," he added.
Chief executive of the Irish Association of Pension Funds (IAPF) Jerry Moriarty said it was concerning that some lenders were extending repayments for borrowers who might no longer be earning a salary. He also warned that concerns over the value of traditional pension arrangements needed to be taken into consideration when deciding older people's capacity to repay mortgages.
"It's always a concern when you're pushing something beyond the age at which people are likely to be earning a salary," he said. "Most people are going to be in defined contribution plans which means what you get in retirement depends on the funds you've built up, and what market conditions are like at a given time. So it's very hard to be definitive about what you'll be getting in the future."
In a statement, the Central Bank said it did not have "specific guidelines or requirements" regarding 30-year mortgages - or deals with longer repayment periods.
Meanwhile, Minister for Public Expenditure Paschal Donohoe has called on the private sector to allow workers to continue in employment beyond the normal retirement age of 65. He said that if increases in the age at which people qualified for State pensions were not matched by longer working lives, future incomes for retirees would become an increasingly pressing issue.