Over 600,000 will use pension to clear mortgage

More than 600,000 Britons intend to use all or part of their pension to help repay their mortgage balance, new research shows.

Just under 10% of mortgage holders said they will use their entire pot or some of their tax-free cash to repay their debt, according to specialist insurer Partnership.

This marks a fall from 14% last year, as more people turn to traditional methods to repay their outstanding balance.

The majority of 40 to 70 year olds with mortgages still intend to meet their obligations via monthly repayments and additional lump sum contributions.

But more than half a million say that they intend to rely on an inheritance to repay the outstanding balance on their property and a similar number said they don’t know how they will meet their obligations.

Andrew Megson, managing director of retirement at Partnership said: “While it is still shocking that over half a million people in the UK intend to use all or part of their retirement savings to repay their mortgage, it has fallen from over one million in 2014. 

“This is fascinating as it suggests that the pension freedoms which allow people to access their entire pension in cash have encouraged people to take a more holistic view of how they use their pension rather than focusing on one-off expenditure. 

“This in turn appears to have focused peoples’ minds on paying off their home loan before they retirement."

Megson said that the work lenders have done in explaining the options and obligations facing interest-only mortgage customers is likely to have encouraged more people to move to capital repayment. 

Some people may still find they reach traditional retirement age with an outstanding mortgage balance, he said.  

“Using their pension may well seem like an option but it is not the only option as working longer, downsizing or considering a lifetime mortgage may be more appropriate. 

“Ideally, pension savings should be used to provide an income in retirement, and with the state pension only providing a very basic safety net, making this choice could lead to hardship in later life.”