Nearly half of Britons aged over 55 on an interest-only mortgage are uncertain about how they are going to pay their mortgage off in full when the time comes, new analysis reveals.

The survey carried out by on-line pension supplier PensionBee discovered one in six had been contemplating utilizing their pension to repay the lump sum, and specialists are warning of the implications.

Becky O’Connor, director of public affairs at pension supplier PensionBee, stated: “The current mortgage rate rise shock may be contributing to an abrupt rethink of retirement plans and causing worry and uncertainty among the population of older homeowners still repaying loans.

“Anyone hoping to wind down from work as they approach their pensionable years and who still has a mortgage to pay could face a significant reality check in the coming months. Their mortgage could suck away even more of their disposable income, potentially forcing them to work for longer.”

Ms O’Connor identified that these on interest-only offers won't solely face potential fee rises but additionally the “additional headache” of a looming deadline for compensation of their capital balances.

According to PensionBee’s new survey, lower than half of over 55 respondents stated they're on capital compensation mortgages, 40 % stated they're on ‘part capital repayment, part interest only’ and nearly one in 5 (18 %) of over 55 respondents with mortgages are on interest-only offers.

The phrases of an interest-only mortgage imply that when a borrower will get to the tip of the required mortgage time period, they might want to have sufficient money out there to repay the remaining capital steadiness.

Almost half of mortgage holder respondents aged 55 or over admitted they're uncertain how they are going to repay their mortgage in full. The most typical remaining mortgage steadiness was lower than £50,000, nevertheless, a small proportion (six %) of respondents reported their steadiness exceeding £250,000.

Using a capital lump sum was famous as the commonest manner respondents had been planning to repay their mortgage in full, whereas utilizing a pension (16 %), promoting the home (11 %) or utilizing fairness launch (5 %) had been different choices being thought of.

Ms O’Connor stated: “It’s worrying that almost half of respondents in this older age group are not sure how they will repay their mortgage in full. One in five are pinning their hopes on a capital lump sum, while one in six think they will use their pension.

“People can access their pension from age 55 and can take 25 percent as a tax-free lump sum. With mortgage rates rising so rapidly, it may be tempting to tap the pension to pay off a home loan.”

Ms O’Connor continued: “Anyone who is considering this must bear in mind the potential impact of using up tax-free cash early on in retirement and then running the risk of not having enough money later on to maintain enough income for a decent living standard.

“Pensions are designed to provide this income. While it can make sense to use some of the pot to pay off mortgages, it’s good to be aware of what this can do to living standards in retirement.”

According to a pensions skilled at Penfold, Britons ought to use the “25 times rule” to work out how a lot to have saved for a “comfortable” retirement. Read extra about that here.