Mortgage lenders split over drawdown treatment

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Lenders are split on how they treat annuities and income drawdown when assessing retirement income.

Last week Money Marketing’s sister title, Mortgage Strategy, reported on concerns that the pension freedoms could make it even more difficult for older borrowers to qualify for a mortgage into retirement.

This is because most lenders only take annuities into account when ­assessing post-retirement income. However, the stances of major lenders vary significantly, which could create further confusion for borrowers.

Virgin Money, Coventry Building Society, Yorkshire Building Society and Santander all say they take annuities into account when assessing income, but not income drawdown.

A Virgin Money spokesman says: “In line with other forms of savings, we do not take drawdown into consideration for the purposes of affordability as it is not considered a regular or guaranteed form of income.”

But Lloyds Banking Group, Royal Bank of Scotland and Clydesdale Bank say income drawdown may be taken into account depending on the circumstances of each case. An RBS spokesman says: “We have a responsibility to check that the customer can service their mortgage if it ends beyond their intended retirement age. We will ask for confirmation of future pension, investment and earned income to make sure the mortgage is affordable once the borrower is retired. Annuities or income drawdown would be included in the definition of pension income.”

A Lloyds spokesman says: “We need to see evidence that a regular income will be available to meet the mortgage payments. We take annu­ities into account and will do the same for drawdown for some customers, but it is likely to be more difficult to prove that drawdown payments will provide a guaranteed regular income.”

Pensions minister Baroness Altmann says consumers need to be aware that the way in which they take their pension income could affect their chances of getting a mortgage.

She says: “Anybody with a DC pension pot who is considering applying for a mortgage in the future should factor this in to their considerations when deciding whether to take a lump sum, leave their money invested or purchase an annuity.”