Britons who plan to retire in the near future but still have mortgages or other debts face a “tricky decision” as the cost of borrowing continues to rise.
The base rate is now at a 15-year high as the central bank looks to combat high inflation.
Retirees with debt face a “real blow” as the interest rate rise may filter through to many of those who rent their property too.
Dean Butler, managing director for customers at Standard Life said: “The Bank of England’s move to raise the base interest rate another 0.5 points, to five percent comes as a real blow to anyone with debt.
“This includes the significant minority of retirees and those approaching retirement who still have credit cards or a mortgage to pay off.
“The costs are also likely to filter through to many of those who rent their property too.
“It’s difficult to believe how different things were until very recently – shockingly, rates only reached one percent last May.
“The speed and severity of the change have taken everyone by surprise, and people who were financially comfortable in the spring of 2022 might now find themselves struggling and having to reassess their plans, particularly as rate rises have been coupled with double-digit inflation.”
Most estimates of the savings people need to live comfortably in retirement, including the Pensions and Lifetime Savings Association (PLSA’s) assume no housing costs – however, this is not the case for all.
Recent Phoenix Insights research found 13 percent of retirees contacted were not homeowners, and so could find themselves paying higher rent due to the knock-on effect of interest rate rises.
Levels of homeownership are falling and many people are also taking +30-year mortgages so more people will be approaching retirement with housing costs – in potentially a long-term higher interest environment.
Mr Butler continued: “People who were planning to retire in the near future but still have mortgages or other debts face a tricky decision as the cost of borrowing continues to rise.
“The state pension by itself isn’t enough for a comfortable retirement even without housing costs or other debts, and many don’t have enough saved in private pensions to bridge the gap.
“If you’re wondering what to do next it’s always worth taking advice if at all possible, speaking to your pension provider or your HR department at work, or using the Government’s free Pension Wise guidance service.”