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Is your retirement in the red?

We all recognise the struggle first time buyers have when trying to get their first step on the property ladder, but increasingly, pensioners face the same battle trying to stay put!

According to the Office for Nation Statistics (ONS), more than one in 10 pensioners are worried about mortgage debt, with a rising number of pensioners retiring in the red.  House prices may have risen, but so has the debt attached to the cherished family home.

Of the 11.2million mortgages in Britain, around 35 per cent are interest-only, meaning that the homebuyer pays only the interest every month and not a penny of the capital. Over time, the homeowner should save up to pay off the capital. However, a recent report from the new City watchdog said more than 2.6 million interest-only mortgages would be due for repayment over the next 30 years and one in 10 people on these deals had no repayment plan. Some home owners have been saving, but they have been extremely disappointed by how their investments, such as endowments, have performed. Research indicates that the borrowers facing the most urgent problems are typically high-income individuals approaching retirement, largely based in the south of England.

Over the next 12 months, more than half a million home owners whose loans are due to mature before 2020 will be contacted about their repayment plans. Martin Wheatley, the FCA's chief executive who has previously compared interest-only mortgages to a ‘ticking time bomb’ stated "By acting now we are aiming to nip this problem in the bud. My advice to borrowers is not to bury your head in the sand – take action now."

The ageing borrowers affected will be faced with decisions, such as: switching to a capital and repayment mortgage, which will increase their monthly payments and impact on their current living costs, using up savings, which are not earning much interest at present or releasing equity from their family home to pay off the remaining debt.  More drastic solutions include: selling their property and buying a smaller one or renting to release cash to pay off the mortgage.

If you are concerned about your mortgage debt, it is vital that you speak to both a financial advisor and your lender to help establish the best course of action that will have least impact on your retirement income and future quality of life.

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