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Do Budget pension reforms help or hinder older borrowers?

When it comes to mortgage age limits, the industry needs a consistent approach to ensure options remain available for older borrowers  

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The Budget changes, which grant savers more freedom in how they choose to take their pension, have meant that property is being talked about much more as a means of boosting retirement income.

This raises questions about what the options are for older borrowers, and what impact the Budget reforms will have on lenders granting mortgages to those near or in retirement.

The market tightened last week after Principality Building Society reintroduced a maximum age limit on borrowing following a flood of applications from older borrowers.

In March, the lender removed its maximum age limit, which had previously stated residential and buy-to-let applicants must repay their loan on or before the eldest applicant’s 70th birthday. Principality has now reinstated a maximum age limit, although now loans must be repaid on or before the eldest applicant’s 76th birthday.

Most lenders have a maximum age limit of 75, although some smaller lenders, including Bath Building Society and National Counties Building Society, will decide on a case-by-case basis.

London & Country associate director of communications David Hollingworth says: “If everyone in the market is imposing age restrictions, stepping away from that can perhaps attract too much interest. The case with Principality reversing its decision to scrap age limits probably shows just that.

“Things may not get tighter necessarily for older borrowers but we are pretty far away from loosening things too much.”

Perception Finance managing director David Sheppard says: “If any lender decides to do something that other lenders don’t want to do, they instantly open themselves up to a wave of applications.

“I don’t think lending into retirement is a singular case in that regard. With Principality, I imagine this would have been the reason behind the reversal.”

In March, Chancellor George Osborne set out plans to allow anyone over the age of 55 to withdraw their pension pot as cash from next April. This prompted speculation that the reforms would help fuel an uptake in property investments for older borrowers, particularly through buy-to-let.

Hollingworth says: “With the changes, we may see lenders’ views change on older borrowers. They will have access to their entire pot and that could work in an applicant’s favour. There is however the opposite argument that lenders might then look at exactly how retirees plan to use their pensions more closely.”

Sheppard believes the changes may work against retiring borrowers.

He says: “I don’t think the pension reforms will necessarily ease the situation. If anything, it may be an extra reason to scrutinise older borrowers more closely – if someone is going to take out their pension pot, are they definitely going to leave themselves enough to pay their mortgages?”

In April, Nationwide’s buy-to-let lending arm The Mortgage Works scrapped its own maximum age limit for applicants, while last week Precise Mortgages increased its age cap from 75 to 85 years.

Brokers say this could be the shape of things to come for older landlords, with lenders taking a less stringent view of older borrowers looking for a rental property.

Hollingworth says: “What has been talked about a lot is the buy-to-let side of things. TMW removing the age limit was a big move, and that seems to have been more successful than Principality’s decision. I don’t think everyone will now take their pension out and buy a rental property, but there will certainly be an increase in that sector and lenders seem to be more open to that kind of lending.”

Lentune Mortgage Consultancy managing director Stuart Gregory says: “It is expected, with the market where it is, that people will see rental properties as the most effective way of boosting retirement income. Lenders will have taken notice of the pension changes and by adding a massive pension pot of cash to a small buy-to-let mortgage, it starts to look like an appealing deal.”

Brokers say regulatory scrutiny on lending into retirement may be preventing a loosening of criteria, but suggest an industry-wide discussion on options for older borrowers.

Hollingworth says: “The regulator has made it clear that borrowing beyond normal retirement age can only be done where it can be stood up. Older borrowers could be more vulnerable. We mustn’t forget that, but there is a market for retirees and finding that balance can be tricky.”

Sheppard suggests an industry-wide effort to ensure options remain available for those wanting to take out a mortgage later in life.

He says: “Perhaps the Council of Mortgage Lenders could open up a discussion with all of its members to agree a collective move to loosen up age limits so that no one lender is left exposed.”

Maximum borrower age limits for residential mortgages

  • Nationwide – 75 years
  • Lloyds Banking Group – 75 years
  • Barclays – 70 years
  • Santander – 75 years
  • NatWest/Royal Bank of Scotland – 70 years
  • HSBC – 65 years for interest-only mortgages, 75 years for repayment mortgages

Maximum borrower age limits for buy-to-let mortgages

  • lBM Solutions – 75 years
  • Precise – 85 years
  • TMW – No age limit

 

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