Former pensions minister Steve Webb warned people must avoid borrowing more than they can afford only to find their retirement finances are “stretched to breaking point”.

Ultra-long, or extended, mortgages have become more popular with just over two in five of all new mortgages obtained between April to June having terms which run past pension age.

This compares with barely three in 10 new mortgages in the last three months of 2021.

Mr Webb, a partner at pension consultants LCP, said: “Many people look forward to retirement as a time when the mortgage is paid off and they can relax and enjoy more free time with family and friends.

“But for a rapidly growing number of people, the prospect of a mortgage-free retirement is looking much less likely.

“With houses becoming increasingly unaffordable for the young in particular, it is understandable that more people are reducing their monthly payments by taking out a loan stretching decades into the future.

“But the worry is what this will mean for their standard of living in retirement.”

He said there is increasing evidence that taking out a mortgage which runs past pension age is an “entrenched feature” of the mortgage market rather than a “temporary blip”.

Mr Webb estimated that over a million new mortgages have been issued since the end of 2021 with terms running past retirement age.

These longer-term mortgages would reduce monthly repayments at a time when people’s finances are squeezed.

High housing prices, along with rising cost of living

 in recent years and high mortgage rates, has left many borrowers with little choice but to extend the term of their home loan to ensure they can meet lenders’ affordability calculations.

After hitting a record high in August 2022, house prices plummeted in the wake of former Prime Minister Liz Truss’s mini budget.

Potential buyers ditched the housing market when interest rates on mortgages rocketed, competition between lenders temporarily collapsed and the value of cash deposits was eroded by record inflation.

Mortgage rates soared again in mid-2023 and also crept up during the spring of this year as markets questioned the UK’s ability to bring inflation down.

The Bank of England announced an interest rate cut on August 1 this year for the first time since March 2020, reducing the base rate from 5.25% to 5% and cut rates further to 4.75% in November.

Alice Haine, personal finance analyst at wealth manager Bestinvest by Evelyn Partners, said: “The take-up of longer-term mortgages has been on the rise since the era of cheap money ended abruptly in December 2021 when the Bank of England began its rapid rate-hiking cycle in a bid to curb rampant inflation.

“Since then, with borrowing costs quickly accelerating, increasing numbers of people turned to 30, 35 or even 40-year mortgages to keep repayments in check. While a typical mortgage

 term is 25 years, long-term loans have become increasingly sought after as buyers grapple with affordability challenges.

“It’s no surprise then to see more of these marathon mortgages stretching into retirement age – something that could have drastic implications for people’s retirement savings.

“Either they continue working beyond the state pension age of 67 to ensure they can service their mortgage repayments, or they must dip into retirement savings to cover the cost – a strategy that risks depleting their pension pot at a much faster rate.”

UK Finance, the banking and lenders’ trade body, said only 3% of mortgage-holders were currently paying off a mortgage after the age of 65.

It said that while many young homeowners have chosen longer mortgage terms to make repayments more manageable, they may opt for shorter terms in the future if their salaries improve or they move house.

Over the last two years, the growth in new long-term mortgages seems to have happened primarily at younger ages, with a 30% increase in the number of under forties taking out mortgages set to run into retirement.

Former pensions minister Baroness Ros Altmann said: “In principle repaying a mortgage out of pension income should not be a problem for those with a decent private pension. Taking out longer term mortgages is often the only way people can afford to buy their own home because house prices and borrowing costs are so high. It can.make sense to spread costs over more years and if people are able to afford repayments earlier along the way in future, they can do this too.

“Indeed a pension income, especially from a public sector type pension with guaranteed income, can be more secure than relying on employment income. Don’t forget of course that the lender makes more profit on longer term loans too.”