In two-and-a-half-years’ time I will be in a spot of bother. I am one of millions, and unless something drastically changes, the repercussions are going to be enormous for me and for countless others.
For the first time in my career I’m thinking about scaling back my pension contributions. Very soon, employers may need to step in and provide crucial advice and guidance for their staff choosing between their homes and their retirement.
Our lovely 1 per cent five-year fixed mortgage, snapped up during the chaotic mid-pandemic days when the mortgage market was the only thing open in Britain, runs out in 2026.
Assuming fixed mortgage rates hang around at today’s 6.7 per cent average, for a two-year deal, the monthly mortgage payments on our modest Victorian terrace will go from £1,600 a month – to more than £3,500.
Even at the average five year fix, of 6 per cent, it is ruinous. I’ll have to go straight from the Telegraph newsroom, to a shift at the printing presses, before moonlighting as a delivery driver before finally going to a newsagent at 5am to flog the paper so the kids can still enjoy their beloved Cheerios.
Stop it; put your violins away. After all, I did buy at the peak of the market, in a seaside city pumped full of people trying to escape London with housing debt at the cheapest it has ever been in the long history of Englishmen trying to buy their castles.
Did I expect those rates to last forever? Of course not. Did I think rates would rise this fast? Of course not. Did I devise a cunning plan for how to pay a far-more expensive mortgage? Of course not.
A Bank of England “stability report” published in July revealed the extent of the mortgage pain coming down the track. Around three million fixed-rate mortgage deals expire in this last quarter of 2023, with slightly more ending in 2026, representing the huge numbers of homeowners who took out two and five-year deals when banks were falling over themselves to lend in 2020 and 2021.
Luckily, unlike in the early 1990s property crash or even the 2008 financial crisis, very few homes will be repossessed by lenders. Despite what you might think given their universally rubbish customer service, banks care a lot about what people think about them – and kicking people out of houses is not endearing. The Financial Conduct Authority has also made it clear that it expects to see lots of hand-holding and genuine help from banks to their borrowers. But most people don’t know this. Despite the very low risk of being repossessed, most people will bend over backwards to pay their mortgages.
The bigger issue is the knock-on effect on other aspects of our personal finances. At the moment I put in as much money to my workplace pension as my employer will match, roughly 7.5 per cent from each of us giving an not-unrespectable 15 per cent total contribution. Even that’s probably not enough – being slightly less than half my age, breaking the old rule of thumb.
But when my mortgage doubles, will that kind of monthly commitment be feasible? Yes, tax relief is magic, and compound interest over several decades even more so, but it can’t be all jam tomorrow. I fear that if I’m thinking this way, with the benefit of reading several lifetimes’ worth of reports into Britain’s retirement crisis, others will be, too.
New research from M&G Wealth suggests one in five of us has already scaled back or entirely ceased saving into a pension as a result of the rising cost of living. Surveys need to be taken with a massive pinch of salt, of course, but if the findings are even vaguely reflecting reality this is a serious problem.
It makes me wonder, too. If you were to phone up your bank and admit you were going to struggle to pay your mortgage – would the call centre staff enquire how much you were saving into your pension? They wouldn’t dare suggest you stop contributing for fear of being hauled up in front of regulators, but they might plant a seed.
D-Day, the February 2026 deadline when my beautiful fix is no more, is drawing nearer.
At the moment the plan revolves around hope: crossing my fingers mortgage rates come down, praying to the HR gods there’s a mix-up and a big surprise pay rise materialises; and finally working out which newsagent it is that sells the winning lottery tickets.