It is not often the Financial Conduct Authority comes up with a snappy soundbite.

However, responding to the growth in mortgages with terms running beyond pension age, earlier this year the regulator said such lending was moving “from a niche to norm”.

I think this admirably sums things up. But should we be concerned?

Using the Freedom of Information Act, I asked the Bank of England to give me information about new mortgages (for both first-time buyers and remortgages) whose term ran past the state pension age. In the fourth quarter (Q4) of 2021, just under one in three (31%) of mortgages ran past pension age.

Regulators and those interested in pensions policy need to take a close look at what is going on in the mortgage market

By Q4 2022, the proportion had risen to 38%, and at the end of last year it was 42% — certainly no longer a “niche”.

Some of this is clearly first-time buyers doing their best to get started with a mortgage and willing to take on a super-long term to do so.

Out of just over 91,000 new mortgages taken out in Q4 2021 and which ran past pension age, just over a third were for people in their thirties or younger. But a surprising proportion went to older borrowers, with more than a quarter going to those aged 50-plus.

Surface view

At first sight, we might be fairly relaxed about the rise of the long mortgage.

If it enables a young person to move from private renting into homeownership, it may look very attractive. And, as their career progresses, there is the potential to shorten the mortgage term.

If the mortgage runs up to retirement, those mortgage-free later-life working years to top up the pension may never happen

Likewise, we may be relatively unconcerned about people in their sixties taking out a mortgage that runs a few years past pension age.

Mortgage lenders will have a good sense of the income in retirement of this group. This may be enough to be confident the debt can be safely serviced to the end of the term.

We may also hope that some of this very long-term lending is a temporary reaction to higher interest rates and that the need for super-long mortgages will diminish as rates fall.

Deeper look

However, I still think we should be concerned.

First, many millions of people are heading towards retirement with inadequate pension savings. Often, state and private pensions combined may be inadequate for much more than a modest retirement, and certainly will not service a mortgage debt as well.

One particular concern would be if people were to reach pension age with a modest defined contribution pension pot and an outstanding mortgage balance; they might use one to pay off the other, leaving them with a very low income in retirement.

We may hope that some of this very long-term lending is a temporary reaction to higher interest rates

Even if mortgages run only to pension age, this is a change from a historical pattern where many people had cleared their mortgage a decade before retirement and could use the remaining years in work to boost their pension.

If the mortgage runs up to retirement, those mortgage-free later-life working years to top up the pension may never happen.

And all of this assumes that individuals are working all the way up to pension age. In reality, millions of UK adults in their fifties and early sixties are now out of paid work because of long-term sickness.

Those who have taken on a mortgage with a term that runs into retirement, but whose stream of earnings dries up a decade earlier, could find themselves in serious difficulty.

Wiping out progress

We do not yet know if falling interest rates will lead to a significant drop in the number of new mortgages running into retirement, but it is hard not to envisage this being a significant factor for years.

At first sight, we might be fairly relaxed about the rise of the long mortgage

Regulators and those interested in pensions policy need to take a close look at what is going on in the mortgage market.

They must make sure the progress that has been made in getting 10 million more people saving into a workplace pension is not wiped out by changes in borrowing and lending patterns.

Steve Webb is a partner at pension consultants LCP and was pensions minister 2010–15

This article featured in the November 2024 edition of Money Marketing. 

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A MAJOR pub has caused fury by charging customers an extra £2 a pint at certain times.

Drinkers at the busy O’Neill’s on Wardour Street in Soho, London usually pay £7.40 for draught beers.

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But the price of the same pint will now jump to £9.40 once the clock strikes 10pm.

The surcharge also applies to other drinks sold at the boozer, as well as beer.

Angry punters have taken to social media to vent on the changes.

One person posted on X (formerly Twitter): “I imagine I’ll never be drinking in an O’Neills pub ever again.”

Another said: “O’Neills is pricey anyway so would not even bother going there.”

A third said: “They’re already ripping people off with £7.40 a pint normally.

“If they want security, it’s not up to the customer to pay for it. Hopefully, they’ll lose money because of this idea.”

“I’m not surprised the pub industry is in such decline,” said a fourth.

The surcharge has only been introduced at the O’Neill’s location on Wardour Street in Soho, London, and has not been introduced at any of the chain’s 40 other pubs.

A spokesperson for pub group Mitchells & Butlers, which owns O’Neill’s, said: “Most hospitality businesses and retailers deploy a form of dynamic pricing, but this means that prices can both rise as well as fall through tactical discounts being offered in the form of time-limited promotions and fixed price menus.

“Dynamic pricing varies on a site-by-site basis as it reflects the local market conditions, but temporary price increases tend to reflect the need to offset additional costs such as at times when door security is required.”

This isn’t the first time a pub group has introduced dynamic pricing.

DYNAMIC PRICING ELSEWHERE

Dynamic pricing is also a common practice in the hospitality sector in the US, although it is rarer in the UK.

Last year, the company behind Slug & Lettuce and Yates’s announced a 20p increase per pint during peak hours due to rising costs.

Stonegate Pubs, which has 4,500 boozers, charges more on midweek, early evenings and weekends.

At the time, a spokesman said: “On occasions, pricing may marginally increase due to increased cost demands.”

Drinkers are already struggling with the cost of living crisis.

In September, the average price of a pint of lager across the entire hospitality sector was £4.79, up from £4.62 the previous year.

Pubs attribute this increase to soaring energy, staffing, ingredient costs, and the huge hike in employee National Insurance contributions announced by Chancellor Rachel Reeves last month.

CHEAPEST PINTS IN THE WORLD

These 10 countries have the cheapest pints in the world

1. Uzbekistan – 70p
2. China – 90p
3. Madagascar – £1
4. Vietnam – £1.02
5. Ukraine – £1.06
6. Belarus – £1.07
7. Philippines – £1.25
8. Colombia – £1.28
9. Azerbaijan – £1.29
10. Kazakhstan – £1.34

TOUGH TIME FOR HOSPITALITY

Last week, Rachel Reeves hiked the employer rate of National Insurance (NI) from 13.8% to 15%.

She also announced a reduction to the threshold at which businesses start paying NI contributions from £9,100 to £5,000.

Last week, Wetherspoons boss Tim Martin warned of price rises in response.

The pub chairman said it would aim to stay competitive on costs for customers but that all hospitality businesses faced the same pressures.

The chain’s tax bill is expected to rise by two-thirds next year after the Chancellor announced a hike in the national insurance for employers.

Wetherspoons anticipates that tax and business costs will increase by approximately £60million over the next year, including an estimated 67% rise in national insurance contributions.

Businesses, particularly within the hospitality sector, have warned that the increased financial burden could lead to higher operating costs, which may ultimately be passed on to consumers through price rises.

Greg Johnson, analyst at City broker Shore Capital, predicts that the national insurance contributions could “add a further 5p to a pint”.

According to the analysis, Wetherspoon competitor Mitchells & Butler, the owner of All Bar One and Toby Carvery, will face a £40millon hit.

Yorkshire brewer Timothy Taylor’s has also warned it will be forced to raise beer prices.

The expected price hikes come despite the Chancellor also cutting tax on draught beer in pubs by 1.7%, which Reeves said would take a penny of a pint.

Other alcoholic beverages, including wine and whisky, rise 3.6% under changes to alcohol duty.

Personal Finance Society members voted down two motions at the professional body’s annual general meeting yesterday evening (11 November).

A total of 232 members (56.7%) voted against item one: that the report and financial statements of the Society for the year ended 31 December 2023 be received and considered.

Meanwhile, 213 members (52.7%) voted against item two: that Crowe U.K. LLP be reappointed as auditors of the PFS for the financial year ending 31 December 2024 and that the directors be authorised to agree their remuneration.

At the meeting, PFS chair Christine Elliott was ratified by members as a lay director.

PFS president Carla Brown was reappointed as a member director, and Ben Wright’s membership of the PFS board – as a member director – was also ratified.

Responding to the vote outcomes, Elliott said: “The PFS board is pleased that so many of our members engaged with the business brought to this year’s AGM. We want an active membership, as we need to be able to act and speak for all our members.

“We will be reaching out to those members who voted against these items to better understand why they chose to do so. The PFS board is in ‘receiving’ mode, listening and actively responding.

“We will reflect on what we hear before deciding what steps to next take in consultation with our members. The PFS board is here to serve and ensure our members get the support they need and deserve.”

Brown added: “The PFS board is committed to actively listening and working on behalf of our members. We benefitted from receiving a great many questions at today’s AGM, and we look forward to continuing many positive conversations over the coming weeks and months.

“I know all members of the PFS board look forward to playing their role in delivering the goals that we are currently developing as part of our plan for 2025, including modernising our membership offer, developing our sector thought leadership, and better supporting our volunteers to deliver the great work that they do on behalf of our wider membership.”

MILLIONS of households could miss out on the Department for Work and Pensions’ (DWP) Christmas bonus.

Most people claiming DWP benefits will be entitled to this year’s £10 Christmas bonus.

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All state pensioners are also eligible, irrespective of their income.

Those receiving one of 20 other benefits will also be eligible for the £10 payment.

That’s as long as they’re still claiming the benefits during the qualifying week for the bonus.

This is usually the first whole week of December, which is December 1 – December 8 this year.

However, 2.4million households eligible for benefits qualifying for the Christmas Bonus are not claiming them.

Some households could be up to £4,727 a year by just claiming an entitled benefit.

Here’s a full list of all the benefits that qualify for the cash boost:

• Armed forces independence payment
• Attendance allowance
• Carer’s allowance
• Child disability payment
• Constant attendance allowance
• Contribution-based employment and support allowance
• Disability living allowance
• Incapacity benefit at the long-term rate
• Industrial death benefit (for widows or widowers)
• Mobility supplement
• Pension credit – the guarantee element
• Personal independence payment (PIP)
• State pension 
• Severe disablement allowance
• Unemployability supplement or allowance
• War disablement pension
• War widow’s pension
• Widowed mother’s allowance
• Widowed parent’s allowance
• Widow’s pension

If you receive Universal Credit as a stand-alone benefit, you must also receive one of the listed benefits to be eligible for the bonus. 

If you are married or live with a partner and are both receiving one of the benefits listed above, you’ll both be eligible for the Christmas bonus.

Over 2.3million households will miss out on this year’s Christmas bonus unless they put in a claim for attendance allowance, carer’s allowance or pension credit – if they aren’t receiving any state pension.

Around 1.1million people in the UK living with a disability are missing out on £5.2billion worth of attendance allowance payments.

Those living with less severe disabilities can get up to £72.65 a week, which works out at £290 a month.

You may be eligible for this if you require help or constant supervision during the day or at night.

The higher rate of £108.55 a week is given to those who require supervision throughout both day and night, or if a medical professional has said you’re nearing the end of life.

This works out as £434.20 a month or £5,644 a year.

To apply, visit gov.uk/attendance-allowance/how-to-claim.

Nearly £2.3billion worth of carer’s allowance is going unclaimed each financial year, with around 530,000 full-time, low paid carers missing out.

Carer’s allowance is a UK benefit designed to help people who have caring responsibilities for more than 35 hours each week.

Those eligible get £81.90 a week paid directly into bank accounts.

To qualify, the person you care for must already get one of these benefits:

• Personal independence payment (PIP) – daily living component
• Disability living allowance – the middle or highest care rate
• Attendance allowance
• Constant attendance allowance at or above the normal maximum rate with an Industrial Injuries Disablement Benefit
• Constant attendance allowance at the basic (full day) rate with a war disablement pension
• Armed forces independence payment

You can apply for the carer’s allowance online by visiting www.gov.uk/carers-allowance/how-to-claim.

The latest Department for Work and Pension (DWP) statistics reveal that up to 760,000 families entitled to pension credit did not claim it during the financial year ending in 2023.

Pension credit, a means-tested benefit designed to top up the income of the poorest pensioners, is becoming increasingly important as it is now linked to other crucial support.

In particular, those claiming pension credit are eligible for the winter fuel payment, which has become more restrictive following recent government changes.

The benefit goes to those who’ve reached state pension age, which is currently 66, whose weekly income is less than £201.05 if you’re single, or £306.85 for couples.

Those who have a higher income may still be eligible if they have a higher income but have others costs like housing, a disability, or even savings.

Claiming pension credit can also unlock extra help, including, a free TV licence if you’re over 75, help with council tax and support with household costs such as ground rent.

To claim, visit gov.uk/pension-credit/how-to-claim.

How is the Christmas bonus paid?

Anyone entitled to the payment doesn’t need to apply, and it will be paid automatically.

As it’s a bonus, it doesn’t need to be repaid and won’t affect any other benefits you receive.

You’ll get it paid into the same account where you usually receive your benefit payments.

But it’s worth keeping an eye on your account to ensure you received it in December.

The payment should appear on your bank statement as “DWP XB”.

If you think you qualify but don’t receive the payment automatically, contact your local Jobcentre Plus or Pension Centre.

A yield of 6.1% but a drop of 31%! Should I buy more BP shares?

BP shares offer a high yield projected to grow through 2026, with a significant earnings increase anticipated, suggesting the stock may be undervalued. BP (LSE: BP) shares have fallen sharply from their 12-month high of £5.40 on April 12.

This decline reflects a similar fall in global oil prices, driven mainly by reduced demand from China amid an uncertain post-COVID economic recovery. Additional downward pressure on oil prices comes from increased global supply. While OPEC+ has been cutting production, other countries have stepped up, balancing the effect.

The Oil Market Outlook In the short term, the bearish sentiment on oil might continue due to these factors, although geopolitical tensions in the Middle East could shift this outlook if the Israel-Iran conflict escalates.

Over the long term, however, I expect a shift. The green energy transition could take longer than predicted; even the UN’s 2023 Climate Change Conference noted that reaching net-zero by 2050 should follow scientific guidance. Since 2014, investment in oil and gas has fallen due to this transition focus, potentially creating future production gaps, which could lift oil prices if demand outpaces supply.

BP’s Core Business Since Murray Auchincloss became CEO in January, BP has adjusted its transition strategy. It dropped its goal to reduce oil and gas production by 2030 and scaled back investments in low-carbon hydrogen. The company also plans to sell its US onshore wind operations.

In contrast, BP is advancing development of its Gulf of Mexico assets (10 billion barrels of oil) and four fields in Iraq (9 billion barrels). BP’s Q3 results showed an underlying replacement cost profit of $2.27 billion (£1.76 billion), surpassing the forecasted $2.05 billion.

One risk for BP is the potential government push to resume its previous energy transition plans, which could reduce its market share and profitability. But as it stands, analysts estimate BP’s earnings will grow by 26.6% annually through 2026.

Share Price and Yield Long-term earnings growth can drive both share prices and dividends. Based on discounted cash flow analysis incorporating this growth, BP shares are 49% undervalued, with a fair price of £7.29 versus the current £3.72. Market fluctuations, of course, could impact this valuation.

Analysts also project BP’s dividends to reach 25.4p in 2025 and 26.7p in 2026, translating to yields of 6.8% and 7.2%, respectively, based on the current share price. With a current yield of 6.1% (22.5p dividend in 2023), these projections make BP shares look appealing. Given this strong growth outlook, I’m planning to buy more BP stock soon.

5 Shares for the Future of Energy For investors without exposure to the energy sector, this could be the right time to consider it, given the potential for growth in the energy market.

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Research from Downing Fund Managers reveals that AI is expected to have a greater impact on adviser businesses than ESG over the next five years.

Nearly half (46%) of advisers surveyed believe AI will drive efficiency, improve personalised insights, and support automation and analysis.

This compares to 28% who consider ESG investing, which is gaining attention from investors and regulators, as the most impactful trend.

Meanwhile, just over one-fifth (22%) think regulatory changes aimed at transparency, cost reduction and customer protection will significantly shape the industry.

Only 9% of advisers see fintech and passive investing growth as the main drivers of future change, while just 7% expect alternative investments and private markets to play the biggest role.

Simon Evan-Cook, manager of the Downing Fox range of Funds of Funds, said: “It’s fascinating how quickly AI has become such a major issue for advisers. It’s not hard to see how it could work in their world, particularly in helping to fill the advice gap.

“It also points to advisers worrying about rising competition from AI, and here we think good active products like Downing Fox will help in differentiating human advisers from the next wave of adviserbots.”

The VT Downing Fox Funds range consists of four funds of funds.

Each portfolio differs depending on how much equity, or ‘growth’ exposure they have, enabling advisers to recommend the option they feel is most suitable for their client.