View more on these topics

BSA: Lenders must change stance on lending into retirement

Stress-retirement-income-savings-pension

The Building Societies Association says lenders must change their attitudes to lending into retirement after research revealed half of 25-34 year olds believe they will not pay off their mortgage while working.

Over a quarter (27 per cent) of the 2,000 people surveyed by the BSA also think they may struggle to get a mortgage into retirement because their credit history, income level or age will count against them.

Many commentators argue lenders have tightened up on their lending into retirement criteria as a result of the Mortgage Market Review.

The issue was brought to the fore recently when the Financial Ombudsman Service upheld a complaint against HSBC for unfairly rejecting a mortgage application on the grounds of age. This was the first case of its kind.

BSA head of mortgage policy Paul Broadhead says lenders need to relax their criteria around lending into retirement.

He says: “Many younger buyers are realising that they may not be able to pay off their mortgage until after they retire. As the average age of a first-time buyer increases, borrowing into retirement is becoming the ‘new normal’, rather than a niche form of lending.

“The Mortgage Market Review, introduced just over a year ago, has had an impact on borrowing. The application process is much more rigorous and borrowers now have to contend with strict affordability assessments that factor in other commitments. This means they may have to borrow over a longer term to secure a mortgage.

“These demographic and regulatory changes mean some borrowers may find their mortgage application is rejected if they need to borrow into their anticipated retirement. The mortgage market needs to change to cater for this shift in borrowing.”

In the HSBC case, a couple in their forties, referred to as Mr A and Ms B, were turned down when applying for a joint £250,000 interest-only loan over an 18-year term.

HSBC rejected the application on the basis that Mr A would have been over 65 when the loan had to be repaid. It said it was entitled to apply a maximum age policy and that it did so to mitigate the reputational risk of allowing customers to borrow into retirement.

But the FOS said the couple’s joint income would have been sufficient to meet the monthly repayments after Mr A reached 65. It added his professional circumstances meant he was unlikely to retire at that age and, in any case, he had a final salary pension scheme.

The FOS accused HSBC of having carried out a “flawed” and “inadequate” risk assessment. It ordered HSBC to pay the couple £500 for distress. It initially proposed that HSBC reconsider their mortgage application but has since redacted that as HSBC has significantly changed its interest-only lending policy since the couple made their application in 2012.

Recommended

Stephanie-Flanders-MM-Peach-700.jpg

Stephanie Flanders: Reasons to be cheerful on Europe

The recent pullback in European bond markets may have dented some of the resurgent optimism towards the continent that has been taking hold this year. Now is a good time to ask whether the improvement in sentiment in Europe is merely a short-term high resulting from cheap currency and a rush of central bank liquidity or […]

Elderly-People-Paperwork-Old-Pension-Pensioners-700x450.jpg
1

Are last-time buyers the answer to the housing crisis?

Any drive to ease the UK’s housing issues by targeting so-called “last-time buyers” faces significant challenges, according to housing experts. Legal & General published research last week which described the last-time buyers market as critical to solving the UK’s housing problems. A joint study by L&G and the Centre for Economics and Business Research found […]

EU-Euro-Europe-Eurozone-700x450.jpg

UK’s last AAA rating at risk of downgrade

S&P has warned the UK’s AAA rating is at risk of downgrade as it cuts its view on the nation from stable to negative. The ratings agency warned that the referendum on EU membership and a potential Brexit has made it more negative on the nation. We believe that the UK government’s decision to hold […]

Finance-Concept-Technology-Brain-Money-700x450.jpg
3

Platforum: How big brands are tackling the robo-advice threat

There is no doubt the robo-adviser tagline is getting plenty of airtime even if no one likes it very much. Both bits seem to cause offence: “robo” because there is scepticism that machine can replace human and “adviser” because they do not provide advice in the formal sense. “Discretionary direct” may be the jargon some insist on but […]

Pension savings-2015

Pension tax relief: parked (for the moment)

The national news agenda has been dominated by pension issues this month. For those that missed it (and there cannot have been many given that this was the lead story in spoken and written media), the Chancellor announced a decision to make no decision on pension tax relief in his 16 March 2016 Budget speech. To […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. We have had two clients refused mortgages on what can only be based on their age. The lenders are behaving in a way that if they treated other sectors of society in such a way they would be shamed and prosecuted. Currently mortgage lenders are a disgrace and with their current attitude an affront to humanity – there are no words for it and while the FCA will probably get the blame the reality is that these lenders want it easy.
    In one case a client of ours has had to surrender tax favourable investments, incur tax charges because of this prejudice. And then later on reinvest at their expense. Imagine an adviser suggesting a client does this…….

Leave a comment