A new age for mortgages

The strict regulatory environment has seen mortgage lenders tighten up on criteria for older borrowers. However, with retirement becoming increasingly flexible and the default retirement age scrapped from the beginning of this month, lenders could come under pressure to ease restrictions on older borrowers.

London and Country head of communications David Hollingworth says: “Lenders have to move with the times. If people are working for longer, criteria will have to evolve to account for that. The presumption that a mortgage must be paid off by 65 will become outdated.”

But he says changing the current assumptions will not be straightforward, partly due to regulatory constraints. “There is a very cautionary approach to retirement lending. Lenders are worried about whether they are making the right restrictions in accordance with the regulator.”

Council of Mortgage Lenders head of external relations Sue Anderson agrees that the regulator motivates lenders’ behaviour. She says: “They have to be sure they comply with the regulator’s requirements.”

Some examples of agerelated restric tions by lenders include First Direct, which will not lend to people who will retire before the mortgage is paid off. More recently, Coventry Building Society introduced a sliding scale for income multiples available for people over 56 and Leeds Building Society cut its maximum lending age from 85 to 80 this month.

Velocity Mortgages principal Donald Fox believes lenders are taking caution to the extreme. He says: “Rather than falling foul of the FSA, lenders are deciding not to service older borrowers. There iss no firm guidance for enders to go on if they want to lend to retirees.”

The mortgage market review may provide some guidance. Anderson says: “There is a trade-off between ensuring people do not unthinkingly commit to high debt service costs without having appropriate income and imposing too many constraints. We hope the MMR will recognise there is a balance to be struck.”

But Hollingworth says: “Lenders have pulled back from the retirement market in anticipation of the MMR. Exactly how that will manifest itself we will have to wait and see but I do not think we will get hard and fast rules.”

The problem is that without specific rules, the issue of lending in retirement is difficult for lenders to balance. Hollingworth says: “There are always going to be people who can clearly support borrowing in retirement who might want a bit of capital for things like home improvement. On the other hand, there is the question of, yes, you can work into retirement, but for how long? There is a flip-flopping of views.”

Introducing a set age limit has been suggested but Anderson does not think this will work. She says: “The selfemployed may work well beyond normal retirement age, so imposing a cut-off limit may not reflect circumstances.”

Hollingworth does not think the definition of too old to borrow is the issue. He says: “Most lenders go to age 75. They are just tighter on checking what kind of income it is, which can be time-consuming.” Another suggestion is shortening mortgage terms so they do not stretch into retirement but Hollingworth dismisses this as not feasible due to the impact on affordability.

One sector that could benefit from continued restrictions is equity release, as it allows borrowers to access lending and potentially move house without incurring monthly payments.

Hollingworth says: “Equity release could come of age. People have approached it with caution but it is a way to deal with debt without affecting monthly income.”

Fox hopes this is not the case. He says: “Lenders are happy to offer equity release to older clients and charge them a fortune but why do they not judge mortgages on the same basis? Equity release only suits a narrow range.”

But even with an increase in equity release, Hollingworth says anyone at or approaching retirement will continue to see difficulties in getting a loan.

He says: “Scrapping the default retirement age might mean a bit of slack for the market but I do not think things will change. Lenders will probably continue to shy away from retirees and stick with vanilla lending.