Mortgage-free retirees benefit from extended pension income

A mortgage is often the single biggest expense a person has, and can take a big chunk out of a pension income during retirement. It is therefore recommended to try and clear as much of the mortgage as possible before retiring. According to new figures, it seems that record low interest rates have made this possible for many homeowners.

A recent article in the Guardian showed that of the 14.3 million owned households, 7.4 million have no mortgage, compared to 6.9 million that do. This is the first time since the early 1980s that there were fewer properties with mortgages than were owned outright.

Perhaps unsurprisingly, most outright owners were of an older generation - there was at least one person aged 65 or over in 4.5 million of the households. This stands to reason, because the longer a person has a mortgage the less they will owe on it, and people in their 50s and 60s will often have had a mortgage for a long time.

A big factor in so many people being able to clear their mortgage is the historic low interest rates, with the Bank of England base rate sitting at 0.5% since 2009. This has seen the cost of many mortgages plummet, allowing them to be overpaid and cleared earlier.

Being mortgage free will be a dream come true for many people, and it will mean that they will not need to use pension release to finish paying for the house, as a number of people do. Instead, they could use it to pay other debts, putting them in an even stronger position for retirement.

Part of the reason that more people own their home outright is the lack of available affordable homes for people trying to get onto the ladder. Strict lending rules were introduced in the Mortgage Market Review too, which made it more difficult to secure a mortgage.

The housing crisis has forced plans for new homes to be in the spotlight in the run up to the election, and yesterday David Cameron pledged to 200,000 starter homes by 2020 if the Conservatives win the upcoming general election. These homes would be for first-time buyers and have a 20% discount.

Labour have promised 200,000 new homes a year by 2020, with powers given to councils to penalise companies that do not build on purchased land within a certain amount of time. The Liberal Democrats want to build 300,000 homes a year by 2020.

Housing looks set to be a key issue, with support for first-time buyers being a priority.

What do you think about the housing crisis? Let us know with a comment below.

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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new

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