Is a mortgage free retirement under threat?


IRELAND has experienced huge challenges in housing with a marked drop in homeownership rates in recent years. This is according to last week’s ESRI report, entitled Future Trends in Housing Tenure and the Adequacy of Retirement Income, drawing its data from Income and Living Conditions and the Irish Longitudinal Study on Ageing.

Mortgage debt is the biggest form of credit that most people will ever have in their lives. There was a time when most mortgages were well cleared by retirement date. This has changed, with high value mortgages with terms up to and exceeding 35 years being put in place, first time buyers getting older and arranging mortgages later in life. It’s not uncommon to see people in their mid-thirties arranging large 35-year term mortgages and unless they overpay during the term of their mortgage, many won’t have cleared the debt until they are well into their sixties or early seventies.

The challenges will be exacerbated with the notable decline in homeownership and a rise in the proportion of households in private rental accommodation. Add to that the cost of both rents and house prices having risen markedly all leading to affordability challenges in terms of meeting housing costs now and in the future.

The challenge has been particularly acute for younger-aged households, with the share of 25-34s who owned their own home halving between 2004 and 2015, falling from 60% to just 30%. For these age groups, the “predominant tenure for non-homeowners” is private rental with no policy support (such as HAP, RAS etc).

While these challenges are immediate in terms of the housing costs burden, a longer-term issue arises; how will renting households manage to continue paying rent when they retire? Historically in Ireland there has been high home-ownership rates with reducing or nil mortgage debt at retirement allowing people to manage on a lower income as their biggest debt is gone, but not anymore.

At present, the share of households with high housing costs clearly falls with age. Over 1-in-5 households aged 25-34 face high housing costs, compared to around 1-in-17 aged 55-64 and only 1-in-100 of those currently aged 65+. For all age cohorts the incidence of high housing costs is notably higher for non-homeowners.

But the new research suggests that future cohorts of retirees are likely to have “substantially” lower rates of homeownership than current retirees, with only 65% of those currently aged 35-44 estimated to become homeowners by retirement versus 90% of those currently aged 65+.

The projected figures are even more stark for the 25-34 age cohort, with just one-in-two households likely to become homeowners by the time they reach retirement age with one-in-three people aged 35-44 not owning their home by the time they retire.

The report finds that such drastic changes in home ownership patterns could raise the proportion of people aged 65+ living in income poverty on an after-housing cost (AHC) basis, from 14% at present to as high as 31%. The report also found that women and those living alone during working life are particularly vulnerable to income poverty in retirement after housing costs are considered. (Households are deemed to be income poor if their disposable income after housing costs – rental or mortgage payments – is below 60% of median household disposable income.)

Currently, older generations are less impacted by this phenomenon, with 80% of those aged 55-64 and 45-54 owning their homes versus 58% of 35 to 44-year-olds. Although the ESRI research indicates that under current trends, home ownership among 35–44-year-olds is likely to reach 65 per cent, for the remaining ones the report starkly suggests it is unlikely the State will be able to fully carry the cost burden for the challenge of higher housing costs in future retirement.

But the report found that with support this age cohort could reach a homeownership rate of 71% by the time they retire. A policy strategy needs to be developed which includes greater incentives to encourage people to invest into a pension during employment to provide some type of a financial safety net when no longer working.

Commenting on the report, lead researcher Dr Rachel Slaymaker said, “Homeownership in retirement currently provides a double dividend – lower housing costs and higher assets in retirement. Our findings suggest that homeownership rates will be substantially lower for future cohorts, particularly those currently aged 45 and under. Without intervention this will lead to significantly higher rates of income poverty in retirement for these cohorts.”

This is something we cannot take for granted.

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