A loan until death: what happens when your mortgage outlives your career?

<span>Today’s homebuyers often do so at a later age than their parents, who typically entered the housing market in their late 20s or early 30s.</span><span>Photograph: Nigel Killeen/Getty Images</span>
Today’s homebuyers often do so at a later age than their parents, who typically entered the housing market in their late 20s or early 30s.Photograph: Nigel Killeen/Getty Images

Workers once timed hanging their hat up in retirement with their very last mortgage repayment to the local bank.

Today, house prices are so high, and living costs so unrelenting, that many people are taking out loans they will never pay off with the sombre knowledge they will head into their retirement years with substantial debt.

The emergence of “forever loans” marks a major change in how Australians approach home ownership, and the growing generational divide.

Guardian Australia readers have shared their experiences.

Stuck in starter home

It was once the case that those with average-paying jobs could afford to buy a home in a sensible postcode. If they had a growing family, they could also upgrade their starter apartment or townhouse into a home with a back yard and swing set.

Now, a prolonged period of wages failing to keep pace with rocketing living costs and property prices is pushing even highly paid workers away from the middle class suburbs they grew up in.

One reader, who asked to remain anonymous, shared his experience of wanting to sell the family’s Brisbane townhouse and buy a home with room for a growing family that includes three kids under the age of 10.

Related: Four charts that prove the huge financial pressure many Australian households are under

The 41-year-old and his wife – who have a combined income of $265,000 – have received pre-approval to buy a home valued at just over $1m.

It’s a sum that is both hard to pay off and insufficient to buy close to the Brisbane suburbs where he grew up.

“I truly don’t understand the point of a mortgage like this,” he says.

“Is the aim even to pay it off, or get to retirement age and sell, and hope that downsizing into an apartment will cover the cost?

“I would be working into my 70s to pay this off.”

The struggle for dual-income households to buy appropriate housing for their family needs is fuelling a generational divide that is changing how people view their mortgage.

“The social contract as it previously existed, or even the dream of home ownership, feels pretty far away,” the reader says.

“We will live further from where we grew up and pay exponentially more for childcare, schools, groceries, insurance, utilities and everything else.”

Retirement debt

Another reader – a single parent financially supporting two children in their 20s – says she plans on using her superannuation to pay off her mortgage in retirement. Elevated interest rates and high living costs have made it near impossible to pay down the loan, she says.

Aged 58, the reader’s mortgage is $454,000 and more than 50% of her teacher’s salary is funnelled into repayments.

The Melbourne woman, who also asked to remain anonymous, will be able to access the age pension in nine years. Until then, she will work full-time, and either retire with a mortgage debt or work past retirement age to pay off the property.

“I’ll go into retirement with zero super,” she says. “I worry a bit.”

“Can I stay healthy for the next nine years, and then just rely on the pension? It means not having a safety net.”

While the reader’s financial circumstances were hindered by a divorce several years ago, a relentless increase in living costs that includes fast-rising utilities, insurance and interest rates have made it worse.

“I didn’t see a divorce happening,” she says.

“I didn’t foresee that my eldest child would be back home … I have to admit, I didn’t see [rates] going up quite as much as they did.”

Mortgage holders have faced 13 rate rises since mid 2022, and the prospect of a rate cut has been pushed back due to persistent inflation.

Late bloomers

Theo Chambers, chief executive of brokerage Shore Financial, says today’s buyers are often buying homes at a later age than their parents, who typically entered the housing market in their late 20s or early 30s.

“As house prices soar, more homebuyers are taking out mortgages they may never fully repay,” Chambers says.

“The shift reflects a major change in how Australians approach home ownership compared to previous generations.”

Related: When a good job is not enough: why even well-paid Australians are going over the mortgage cliff

The average age of first-time homebuyers is up to 36 across Australia, according to Shore Financial, and nearing 40 in Sydney, which means a typical 30-year mortgage term will extend well beyond the traditional retirement age.

As national home values hover around record highs, buyers are being forced to find creative ways to get into the market.

Brokers are reporting increased purchases by multiple applicants, consisting of three or more family members or friends.

There is also a surge in “rent-vesting”, a strategy which involves buying a property to rent out in the expectation it will increase in value to provide the deposit required to buy a home the person wants to live in.

Sebastian Watkins, co-founder of online mortgage broker Lendi, said people were increasingly buying first homes they don’t ever intend to live in.

“Rent-vesting probably wasn’t even a word that was commonly understood five or 10 years ago, and now it represents a significant portion of first time buyers,” said Watkins.

‘Until my death’

Those buying homes after the age of about 50 would typically need to show their lender a strategy to pay off the loan within about 20 years.

Watkins says many lenders are uncomfortable with an exit strategy of downsizing that is reliant on anticipated capital growth, which limits the options for older buyers.

“The short answer is that the options are becoming few and far between, and they’ve either got to find a property with a smaller loan which by definition means they are looking for suburbs and areas that have lower house values,” he says.

One reader says that at age 50, he still has 28 years left on his $640,000 mortgage.

He says he falls further behind financially every month due to a combination of high tuition, food, grocery and utility prices, leaving “negative savings”.

“I will be paying this until my death,” he says.