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FOS rules against HSBC over rejecting mortgage based on age

The Financial Ombudsman Service has upheld a complaint against HSBC for unfairly rejecting a mortgage application on the grounds of age in the first case of its kind.

The Sunday Times reports a couple in their forties, who do not wish to be named, 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 the husband would have been over 65 when the loan had to be repaid.

The couple, who are said to hold substantial equity in their home, were first issued with a decision in principle before the bank decided not to proceed.

The couple then referred their complaint to the FOS.

In the decision, the FOS says: “The bank relied on untested assumptions, stereotypes or generalisations in respect of age. “

The FOS added the bank’s assessment of the application was “inadequate” and “flawed” and criticised HSBC over “unfair application of its age policy”.

HSBC has been ordered to pay £500 compensation and been told to reconsider the application.

HSBC told the newspaper: “As a responsible lender, we need to ensure our customers’ ability to repay their mortgage.

“Regulatory requirements to show responsible lending and the repayment vehicles associated with interest-only loans have become more stringent since this application was made. It’s important to stress that when we look at a mortgage application we take a number of different factors into account, which includes assessing each customer’s individual circumstances.” 

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Comments

There are 30 comments at the moment, we would love to hear your opinion too.

  1. Shocking. “lend me money on the same terms as a lower risk applicant or I’ll take you to the ombudsman”.

  2. Fantastic! – let the flood gates open for another round of compensation claims for all those refused a mortgage in similar circumstances.
    An Ambulance chaser dream come true
    Again the FOS say different to FCA – and who is caught in the middle of all this yet again ?

  3. So, presumably, the other two respondents think it completely fair to judge all over 65’s as incapable of working or paying their way? Really?

  4. If this story accurately represents the facts, then HSBC looks pretty stupid on 3 counts.

    Ability to pay obviously isn’t determined by age, though age is a clue for what to look for in the finances. In fact the existence of good pension provision can make borrowers reaching retirement age a better bet than when facing the uncertainty of remaining in work within an ever more capricious employment market.
    The reply makes out it was all about responsibility and judging ability to pay, whereas the story and judgment suggests that was the issue – age, not ability to pay, was judged.
    And if just being beyond 65 at the time for repayment is enough to refuse the loan, then why give a favourable in principle decision in the first place?? How can it be allowable to change the decision on a point of fact known at the outset? That’s just messing with people’s lives.

    Aargh! Dreading my next mortgage application.

  5. Interesting comments that clearly show the consumer/client is still not paramount in the minds of those giving advice and that the protection of t”heir little worlds” is more valuable than a fair customer outcome which is why the regulation of this marketplace was long overdue and from a far I do wonder if we still have the correct mindset for dealing fairly with clients who place their trust in such services, I thoroughly agree with the FOS outcome and this appears to be another in an extremely long historical line of banks ( in particular) getting it totally wrong. If you read the article properly it is clear HSBC made unsubstantiated decisions that did not reflect the true risks involved, it worries me that there are those who agree that this was absolutely correct. As for the FOS and FCA not in agreement, well there is nothing new in that so I suggest build a bridge and get over it.

  6. In reality, we’ve all had cases that we’ve looked at where the term may exceed a lenders stated maximum age or terminology over “retirement income” or “retirement age” – and we’ve all argued the case for the client as there are usually grounds or grey areas that written criteria simply cannot accommodate.

    This is where reasonability needs to come back into things – but as Edward hints at earlier, the Ambulance Chasers love a bit of “reasonability”…. and would argue the case either way if it suits them!!

    This industry is constantly between a rock and a hard place!

  7. We're all doomed!!!!! 13th April 2015 at 9:51 am

    HSBC rejected the application “on the basis that the Husband would have been over 65 when the loan was due to be repaid”

    So, their rational for rejection was flawed – I do not see how FOS have done Nything wrong here – retirement age for a male in his 40s is now not 65!

  8. Ridiculous! The rules are tightened-up as a consequence of past problems. Europe rules too so the FOS decides it can ignore them and castigate HSBC.

    So at age 65 I can see the customers taking HSBC to the FOS and saying it was inappropriate them advancing a mortgage beyond retirement age sot he residual debt should be wiped-off.

    Now if the regulator agrees that mortgages can be considered in a more sensible way again (eg what is wrong with a small interest-only mortgage against a high equity home for a ninety-nine year old), that might be fine and the lenders can take prudent and balanced decisions again. I haven’t seen any relaxation – have you? If anything, the recent accord on remortgages needing to meet the new criteria of ‘affordability’ go the other way.

    Why can’t these borrowers have a mortgage which is repaid by age 65 anyway?

  9. The compensation culture we live in is vile and out of control, fuelled by overbearing paternalism and schizophrenic regulation. This is like throwing a house party, refusing entry to an unknown undesirable looking fellow, and being sued for not letting him in. It’s HSBC’s money, why should they not be allowed to choose who to lend it to and who to decline – if they dont get business as a result, that’s their commercial perogative. Hopefully HSBC will review the case and find another reason to turn it down.

  10. A big part of me agrees with the FOS on this, it does seem rather silly of HSBC to refuse this given the circumstances (reported) especially after they did have an offer in principle ?

    Is this just a simple case of the computer says NO ?
    Or has HSBC refused this because, it does have a right to turn business away if it wants to ?

  11. The FOS are going to be very busy if they are gong to look at mortgage refusals for daft reasons.
    I am not sure if its a good thing or a bad thing. On balance I don’t think its a good idea for yet another body to tell the lenders how they should interpret the rules it makes things even more confusing.

  12. Paul – No I do not think it is wrong to lend to over 65’s – in fact it makes good sense to do so- from the lenders view as the borrower has guaranteed pension income unlike an employee who could be ill or made redundant at anytime and from a financial planning view for the wealthier clients – if they can afford it age should not be used against a borrower. My point was trying to highlight FOS saying opposite to FCA again

  13. The Cynical Broker 13th April 2015 at 10:21 am

    You always know when a lender’s in the wrong as the words “responsible lender” are trotted out! Also the thinly veiled hint that it’s not their fault, but it’s the regulator, who’s made it more difficult for older borrowers, especially those with interest only mortgages who’s really to blame.

  14. There are swathes of mortgage prisoners in their 40’s, 50’s and 60’s who have no hope of ever being able to move, port or even downsize, even though they have never missed a mortgage payment in their lives. It cannot possibly be right for a lender to decline a mortgage to an existing borrower already taking their mortgage past the age of 65 who wish to borrow less and reduce their mortgage payments but keep their existing term.
    This is utter madness. There is no common sense applied to underwriting anymore and until the lenders get into the real world and appreciate that just because the state assume a retirement age, unless you have been extremely lucky to have worked for a large corporation or in the public sector, it is unlikely that most people will be able to retire at state pension age.

  15. I suspect HSBC agreed the case to a term of 65, but the adviser had tried to extend it due to afforability.

    Age discrimination legislation is now UK law and so lenders will need to re-think their maximum terms.

  16. Surely the simple process of adding the required term to the age of the oldest applicant would highlight an issue if the result is borrowing beyond 65. HSBC do look a bit foolish here, they should have flagged the mortgage was required beyond 65 and then asked for evidence of affordability in retirement. At that time they could have knocked them back if the evidence wasn’t sufficient.

    The old rules are becoming more and more blurred by an ageing population and it isn’t just the NHS and pensions that will be effected. More healthy people working well into (traditional) retirement is going to mean more people falling foul of the ‘standard’ rules.

  17. Having read the actual Ombudsman adjudication there are a few things to note here. Firstly, the issue was simply a matter of whether HSBC breached the age discrimination rules. When providing a financial service you are allowed to providing it’s done based on a risk assessment. FOS found that HSBC did base the rejection on a risk assessmnet but that it was rather general and insufficiently substantiated so found against HSBC.

    FOS also fully acknowledged that regulation has since tightened the requirements on lenders and who they can lend to. The original application was made in October 2012 and was for an interest only mortgage with no repayment vehicle – FOS further acknowledged that this would never be approved now. In other words this case sets no precedents (other than confirming lenders must comply with age discrimination laws) because things have moved on.

  18. William O'Reilly 13th April 2015 at 6:03 pm

    Grant Mitchell sums this up nicely…

    “Interesting comments that clearly show the consumer/client is still not paramount in the minds of those giving advice”

  19. You can bet that in 18 years time they will then put a claim in saying they shouldn’t have been given a mortgage.

  20. Glad we have such a negative cynical set of mortgage advisors I give thanks everyday that this area is not my bag I can only assume if they have quarterly get togethers that they are held in a coroners office with chamber music and black is not an option. Unable to give advice which they apparently dont feel confident about in the first place for fear of litigation in a decades time. The rest of us assume the opposite stance and mindset and keep it simple, customer first, professional advice and recommendation using knowledge, experience and bucket loads of TCF, strange how complaints never enter your mind when working this way.

  21. Grant – it’s not about ‘mortgages’ but evidently you have not suffered the wrath of inequitable complaints and even more inequitable behaviour at the hands of the FOS – fortunate chap!

    One day you will find that best practice, best behaviour and all the skills, education and experience you wield, let alone appropriate documentation presented in doing the right thing for the client will be but nowt in the face of a complaint brought by that lovely client or even the beneficiaries within his estate – or the solicitor acting for it.

    Then of course that is before the CMC gets hold of the client whose investments have gone down or not performed as well as what conveniently could be perceived to have been the appropriate vehicle for the client in the first place (maybe not taking enough market risk, eh?) and the FOS agrees and awards a tracker fund comparative performance compensation and one with no management fees, naturally.

    That’s the ‘real world’ sadly and we are operating within it, however hard we try to do the very best for our clients, perhaps one could say ‘regardless’ of what the consequences may deliver. Sadly, all of our offerings have to price-in the inevitably of such occurrences too – don’t forget that.

  22. The whole mortgage application process is illogical and unfair. Why base it on the oldest person, who may earn much less than the youngest person?
    How about assessing a mortgage application on the highest earner combined with the longest term (youngest age) which would be a fair approach on ability to pay? If the mortgage repayments are achievable why apply archaic and potentially age discriminatory policies to what should be by default, a personalised approach ….. after all, not that many of them around today!

  23. Based on Grey Areas comments this would suggest that the FOS applies the rules/guidance that was in place at the time when it suits them.

  24. Regulation played a significant part in the US led banking collapse. The Clinton administration boosted the Community Reinvestment Act, a program to promote home ownership by the poor, which in fact was a vast regulatory extortion scheme against the banks who were forced to commit nearly $1 trillion for inner city and low-income mortgages and real estate development projects to people who could not afford to borrow and who could not afford to repay & when the defaulted banks were again forced into offering credit.

    So here we see the FOS obliging banks to lend to older client possibly on terms beyond their earning lief expectancy. .

  25. Simon, what about certainty of income expectancy? In my own case, since going free-lance, my income will be much more predictable in retirement thanks to pensions, than during the reminder of my expected earnings life.

  26. Ruth if you can support the required income over the life expectancy of the mortgage term then so be it. However, I’m sure you can understand that free-lance income predictable is subjective. The prevalence of executive power should come under fire where they interfere with normal commercial practice i.e. one should not lend to those who can not afford to repay and regulators should have no place in this process.

  27. Simon, yes I agree predictability of free-lance income is subjective, whilst guaranteed pension is not. And that’s the point.

    Guaranteed pension income in fact is even more reliable than employed earnings, which can easily come to an end prematurely. There’s a stronger argument for expecting pension income to underpin mortgage payments than pre-retirement earnings, as regards predictability. Quantum of course is another matter, (as are DC vs DB benefits), so needs to be looked at, but not assumed.

    So that’s why some of us are, for once, on the side of the ombudsman as regards lenders purporting to decide ability to pay solely on age. Passing normal retirement age is not a valid test of ability to pay in its own right. And if it’s purely a commercial preference not to be in that part of the market, why give an in principle decision in the first place, when age plus term is an easy criteria to apply straight off.

  28. @Sean
    They are supposed to apply the standards at the time in all cases not just when it suits them. However, they always have the ‘fair and resonable’ card to fall back on which might sometimes give the impression that it is applied when it suits them.

    @Ruth Gilbert
    There is something of any irony here given all the pension freedoms. Assuming there will be a lot fewer annuities being purchased there will be a lot fewer guaranteed pensions around. Of course, that’s only for a year when you can sell your guaranteed annuity anyway. So much for ‘guaranteed’…

  29. Grey Area. Yes, irony and danger noted.
    Also the irony of public policy swinging wildly from consumer protection to scammer bonanza.

  30. The loan was interest only, so at age 65+ it must be repaid in full.

    Clearly the customers ability to repay the loan needs to be taken into account.

    We know that the LTV ratio is well under 100%, so theoretically the couple could down size if necessary. Of course, house values can fall as well as rise.

    However, I can see firms being castigated down the line if customers can take substancial debts into retirement. Predicting your retirement income decades away is tricky at best.

    I can also see a re run of Endowment scandal, if some repayment vehicle is required, and an “eviction” scandal, if mortgages are run into retirement with no repayment vehicle.

    Promises to be interesting.

    Of course, FOS like HMG never take responsibility.

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