First-time buyers are taking out jumbo loans on longer terms that will leave four in 10 borrowers paying off their mortgage well into retirement, regulators have warned.

The Financial Conduct Authority (FCA) found that 40% of borrowers who took out a mortgage in 2017 will be aged over 65 when their mortgage matures – leaving them unable to save for a pension, and vulnerable to any financial shocks.

The 40% figure represents a huge change over the last five years. As recently as 2012, just 22% of mortgages were expected to run into the borrower’s retirement. But that number has nearly doubled as buyers stretch themselves to pay for escalating house prices.

Facebook Twitter Pinterest One in four borrowers will be entering retirement with a mortgage. Illustration: FCA Sector Views, 2019

Historically, buyers have taken out 25-year mortgages to pay for their home, and in 2007 the 25-year term was still the most common deal. But the FCA found that 30-year terms have now become the norm, with 34% of loans taken out in 2017 lasting 30 years or more.

Most lenders now allow mortgages of 35 years, while Halifax and Nationwide, the two biggest lenders, will offer loans with 40-year repayment terms.

Many first-time buyers are also delaying a purchase until they are in their 30s as they save to afford the deposit.

In a grim assessment of the financial health of UK households, the FCA warned that the burden of a mortgage throughout people’s working lives is likely to limit their ability to save for a pension and deal with financial shocks.

“A range of factors, including subdued earnings growth, changing working patterns, increasing household debt and lower saving rates suggest many households may lack financial resilience to withstand financial shocks,” it said in its 2019 Sector Views on how the financial system is working as a whole.

Pension expert Tom McPhail, of Hargreaves Lansdown, said: “The big challenge is: how are people going to be able to service this debt past the age of 65? This phenomenon of running debt into later life is now becoming the norm, whereas before more people were able to clear their debts by their late 50s or early 60s.

“But young people are coming to the conclusion that to afford a home they have to commit to paying for debt through their 60s and into their 70s. It’s a significant risk, especially if your health starts deteriorating. Many people retire early not because they want or can afford to, but because they have to.”

The FCA also highlighted the increasing number of mortgages taken out on high multiples of the borrower’s income.

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It said that loan-to-income ratios (LTIs) continue to increase. “Over 25% of mortgages now have an LTI of greater than four times income, with an increasing number of loans near the banks’ 4.5 times LTI flow limit.”

Mortgage broker Jonathan Harris, of Anderson Harris, said: “The rising age of first-time buyers means many people don’t get on the housing ladder until their late 30s, so the chances of having paid back the mortgage by state retirement age are increasingly slim.

“Rising house prices mean people are having to take on bigger mortgages but this is less of a concern if you are still earning, can ultimately sell up and downsize and still have a decent property to live in. First-time buyers rarely go for 25-year terms now but opt for longer ones, and can always overpay and try to clear the loan more quickly as they can afford to do so.”