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Lenders warned over TCF after FOS maximum mortgage age ruling

Mortgage lenders could fall foul of treating customers fairly rules if they apply generic lending criteria following a Financial Ombudsman Service ruling against HSBC, experts warn.

The FOS has upheld a complaint against the bank for unfairly rejecting a mortgage application on the grounds of age in the first case of its kind.

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 says the couple’s joint income would have been sufficient to meet the monthly repayments after Mr A reached 65. It says 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 says: “Rather than considering Mr A and Ms B’s individual circumstances, it seems that the information the bank relied on included untested assumptions, stereotypes or generalisations in respect of age and wasn’t relevant to Mr A and Ms B’s circumstances.”

It adds that HSBC’s risk assessment was “flawed” and “inadequate”.

The FOS concluded the bank did not treat the borrowers fairly by refusing to consider their application “on the basis of Mr A’s age alone”.

The FOS has ordered HSBC to pay the couple £500 for distress. It initially proposed that HSBC reconsider their mortgage application, but has now redacted that as HSBC has significantly changed its interest only lending policy since the couple made their application in 2012.

Law firm DWF partner Harriet Quiney says: “The findings clearly demonstrate that customers must be treated as individuals and, while affordability in retirement is a factor which must be taken into account, lenders cannot rely on broad generalisations to deny mortgages to borrowers.”

She says social trends including divorce, increases in the state retirement age and borrowers delaying buying their first home means there are a “substantial number of borrowers aged 40 and over”.

But she adds: “Where interest only mortgages are concerned, there is clearly an increased focus on repayment and for many people the options in retirement will be reduced. So even if discriminatory factors are removed from the equation, it may still be harder for borrowers in their late 40 and 50s to find mortgages than for those in their 30s.”

Bill Warren Compliance managing director Bill Warren says HSBC’s policy is “blatantly unfair” and the decision could lead to further complaints.

He says: “Other borrowers in their 40s who see this decision will be asking their lender why they have been turned down.

“Lenders must look at the individual circumstances of each borrower. This is a prime example of not treating customers fairly.”

A spokeswoman for HSBC says: “As a responsible lender, we need to ensure our customers’ ability to repay their mortgage. With interest only lending we also need to understand how a customer will repay the capital when the mortgage matures.

“Regulatory requirements to show responsible lending and the repayment vehicles associated with interest only loans have become more stringent since this application was made in 2012. 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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There are 19 comments at the moment, we would love to hear your opinion too.

  1. I have been stating for some considerable time, that having a maximum age at expiry across the board is ageism. I have had situation were a significant age differences apply, once such case being a marries couple who were aged 58 and 40. I could not place this case with any high street lender, as the clients wanted a 20 year term. This was despite the income of the younger applicant being sufficient. This ridiculous rule still applies with most lenders and clearly needs changing.

    I also come across plenty of situations were pension income is sufficient to validate the Mortgage, yet most lenders restrict the term to 75. Why is this I ask?

    I am pleased to see this challenge has been made and hope it is the start of a more sensible approach, to lending to older and retired clients.

  2. Much as I accept that lenders are uniformly stupid when it comes to interpreting the MMR requirements I have even greater misgivings regarding the Ombudsman Service insinuating itself into the process.

    This proves that the Ombudsman really is a second tier regulator which is able to influence any firms commercial judgement.

    In this instance they have over-stepped the mark and should remove themselves from the circle.

  3. Impartial Advice 17th April 2015 at 11:19 am

    It is good to see FOS looking at cases sensibly unfortunately, HSBC are not regulated by FOS and the FCA allow the lenders to set their own parameters. that is why we have different lenders with different criteria.
    I am a firm believer that client who demonstrate they can afford the mortgage should be able to take the term they request especially in this day and age where there is no set retirement age and a client can work past state retirement age if they wish.

  4. The FOS advises that the lender based their decision on ‘untested assuptions, stereotypes and generalisations in respect of age and wasn’t relevent to the clients circumstance’. If you underwrite by computer, programed for political correctness, allied to to regulations designed by desk jockies, why would you be surprised at the outcome. We now have multiple regulations, which leaves you in the position of which one to ignore, as one regulation can contradict the other i.e. age discrimination and MMR. An opportunity for Solomion Finacial Services!

    Pundits are providing more and more, less and less, credible excuses for the decline of the mortgage market. We are advised, seasonal factors, elections, politcal uncertainries etc, etc. We all know however that it is mainly down to the appalling hash made by the regulators, pursuing the need to redeem their reputation and achieving, as usual, the opposite effect. This new swath of regulation serves nobody other that the originators, and even then they shoot themselves in the foot.

    It’s time someone shouted ‘The King has no clothes’.

  5. Good stat off the tv last night home ownership in the uk is dropping by 1% per annum.

  6. A client’s ability to pay has nothing to do with age, colour of skin, sex, religion. It has to do with income and income security. All mention of upper age limits should be a criminal offence.

  7. It’s rather interesting you should say that Ken, as last year, I had a case turned down by one of the small building societies, due to the client not having a full grasp of the English language. They were a Polish couple, who in my view spoke very good English and understood all I had advised. This lenders underwriter called them and because she wasn’t fully satisfied, they understood everything, declined the case. I was shocked at the time an felt compelled to report this lender, but just decided to place the case and Boycott the lender.

  8. @Ken Durkin
    The law on age discrimitaion already exists. It also has exceptions for financial services where it can be justified on objective grounds. This is where HSBC fell down.

    @Carl McGovern
    It’s not unreasonable for a lender to want to be sure that a potential client understands the contract they are entering into. They have to make a judgement. That judgement may differ from yours but that doesn’t mean they were wrong or you are right. It’s a judgement and the consequences for them of getting wrong are much greater for them than you.

  9. The sad truth is (as has been stated exhaustively since MMR) that this whole problem (as well as many of the well known other ills in the mortgage market) have been caused DIRECTLY by completely pointless regulation.

    The ’emperors new clothes’ has been trawled out as an analogy for the regulator for years now – but it has never been more accurate in describing this !

  10. All this and the above comments, demonstrate the way we lend money in this country (mortgages or other) is completely flawed !

    Its about time we rip up the rule book and start applying some common sense ! every-one is sick to the back teeth, of “the computer says no” reply.

    Its little wonder, that people will try to circumvent the rules or questions to “make it fit” which in its self a bigger worry !

  11. There is a lender that offers an interest-only lifetime mortgage based on pension income. Sensibly they look at the remaining income if the main pension holder dies first, and lend on that basis. Pension income is the most secure income a person can get! It cannot possibly be a business decision to ban someone on age grounds. If the income is RPI higher at 76 over 75, how can a cut off date of 75 be justified? I repeat, it should be a criminal offence. There should be no exceptions for ageism. Ageism is ageism. It is an obscenity.

  12. @DH
    You are, of course, completely correct and your bigger worry is a big worry and an elephant in the room. However, ‘common sense’ can only be applied by a human being and they cost money and take time. Back in the day where there were no computers there were less mortagages and they were more expensive. It’s a trade off where the average joe benefits and the unusual situations get the raw deal.

  13. @GA – At the PFS regional seminars they have a presentation on crowd funding and peer to peer lending.
    What makes me laugh is I remember when I/we were trained to assess lending propositions using the “Campari & Ice” method and even then very senior bank managers got caught out with security led lending coming home to roost, then in the early 90’s even personal loans become credit scored and to stick to the model previous experienced staff had to turn down loans because computer said no for someone who met the previous manual assessment and agree loans for people you wouldn’t lend the money to for a hot meal!
    Now we have people being encouraged and marketed to put say 10% of their money in to a “punt” on a proposition someone else who they have no contract with has assessed as being a worthwhile “punt” as they can only loose 10% if they get it wrong and often with NO security! Only for “sophisticated investors” yeah right………
    The other PFS presentation was on diversification, so 10% of your assents in untried untested loans to someone doesn’t sound like diversification to me it sounds like gambling, but then that’s is what happens when a government encourages gambling (i.e. the National lottery which I have NEVER done) You’ve got more chance of being eaten by a shark or killed by a champagne cork, so I will stick to spending mu money on Scuba Diving, Champagne (I prefer Proseco on the whole) Skiing and free kayaking in the Sea.

  14. Completely agree withDH The regime has been out of touch for many years and will continue to be with rules thought up in ivory towers

  15. @ Grey Area

    I totally get your point re-: computers, and agree, and here is my counter argument, they (computers) are tools, an implement to help do the job; no more no less, you cant reason with a computer, you cant argue with a computer, and a computer cant show empathy, you can shout at it till you are blue in the face it wont change its mind, so on and so on, are they really cheaper/cost effective in the long run ? based on the removal of human interaction/advice/reasoning, altogether !

    We are trying to simplify an industry, (mortgages are no different than investments and pensions in this respect), with technology, and the stuff we have around at the moment is fantastic when you consider where we were 10 years ago, my job would be a damn sight harder, but at the end of the day they are just tools, they are there to enhance what we do, NOT take over, and certainly NOT advise or reason !

    Until the powers that be start to realise that not everything can be put in a nice little box topped with a bow (very rarely it can) we might just start getting out of this mess, all the regulator does is add a few more 100 pages to the rulebook which is the primary source of the problem !

  16. Interesting thread and DH comes back to supporting my original complaint about the infalability of computers. A recent case I had a couple who ticked all the boxes in spades but were turned down by TSB, because of a dispute with British gas over a final reading. BG eventually agreed the client was correct but by that time a default had been registered … so no mortgage. Five months later we are still trying to have the default removed, with no end in sight. Meanwhile client is stuck in a rented property.

    With all the filters and pre-testing of mortgage applications, there cannot be many cases turned down unexpectedly, so why not refer all declinatures to human underwriters, with the need to justify the decision to the applicant? Computers can still do the bulk of the work but real people can provide an automatic check on declinatures.

  17. @john West – I agree with you re declines A computer should not be allowed to agree or decline, they should just be a guide. Especially when as in your example it is rubbish in as they have got rubbish out.

  18. Interested Observer 20th April 2015 at 3:03 pm

    My concern with this article is covered by this part:

    “The FOS has ordered HSBC to pay the couple £500 for distress. It initially proposed that HSBC reconsider their mortgage application, but has now redacted that as HSBC has significantly changed its interest only lending policy since the couple made their application in 2012.”

    The mortgage market has changed beyond recognition since 2012. Are FOS really so far behind on their complaints that they are only looking at 2012 now??

  19. The £500 fine will not even register with HSBC, firstly as it is 7 ‘0’ short of recognition and secondly is is charged as a business expense anyway. Although the application was made in 2012 and the martket has changed … has HSBC’s mindset. The FoS have redacted the censure, so the whole excercise has cost HSBC £500, a fleabite on an elephant! It has now become policy for financial institutions to assume substantial fines when anticipating next years figures, so we have intitutionalised misdemeanors…. except if you are a small intermediary, when it is a hanging offence. Where are the FCA and their familiars, who introduced this politically correct mess of pottage in the first place?

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