It has been a tough time for older mortgage borrowers as lenders cut maximum age limits. But with the implementation of the Mortgage Market Review and the Budget announcement of new pension freedoms, things could get even more difficult, experts warn.
In the past two years, lenders have pulled away from lending to people in their eighties and made the seventies the new maximum. If, for example, a lender says a mortgage must be paid off in full by age 70 so the average person will be unable to take out a fresh 25-year mortgage when they hit 45.
Given the average unassisted first-time buyer is aged 38 and rising, this is not insignificant. Moneyfacts data shows some lenders have a maximum age limit as low as 65, including Clydesdale & Yorkshire Banks and Kensington.
The best hope for borrowing into old age lies with small building societies, typified by Bath, Family, Monmouthshire and Vernon building societies, all of which have no borrowing age limits. Given the average unassisted first-time buyer is aged 38 and rising, this is not insignificant. Moneyfacts data shows some lenders have a maximum age limit as low as 65, including Clydesdale & Yorkshire Banks and Kensington.
The Council of Mortgage Lenders says most lenders will have an exceptions policy on age limits if there is a rational reason to lend.
“We have a steady stream of letters from people who are being told by their bank or building society that they can’t get a loan,” says Age UK senior policy adviser Lucy Malenczuk. “They are getting the message that it is nothing to do with affordability, it is just their age. As people start to work longer and buy homes later, we would expect to see age limits move in an upwards trajectory. But it is going in the other direction.”
Figures from the Office for National Statistics show there are more than half a million Britons aged over 90 and that number is expected to increase.
Coreco Group director Andrew Montlake says: “Lenders are worried about the PR fallout. The prospect of repossessing someone older is difficult. If you take that out of the equation, there is no sensible reason why there should not be more lending to older people.”
But concerns over bad publicity are being combined with regulatory hurdles as the MMR and new pension freedoms throw up difficulties.
The CML says there are a number of reasons why lenders are reluctant to lend into old age, including the MMR rules that came into force in April.
CML head of member and external affairs Sue Anderson says: “Lenders now have to take a very clear view of when someone is going to retire and what their income will look like in retirement.
“How do you verify both and counter the regulatory environment down the line? It’s an area where the current rules need looking at to see if they are proportionate.”
The uncertainty over assessing affordability is being compounded by new rules on pension freedoms. From next April, anyone aged 55 or over will be able to withdraw their entire pension pot subject to marginal tax rates.
Anderson says: “Under the MMR, you need to take a view of what the [person’s] income will look like and [with these pension changes] you might not know.
“If someone can take a big lump sum, it adds uncertainty about what is deemed an adequate assessment. It adds complexity.”
John Charcol senior technical manager Ray Boulger says the pension reforms will revolutionise at-retirement incomes so lenders will need to be much smarter when assessing affordability.
However, he adds there are still many pensioners with fixed retirement incomes so lending policies remain “bizarre”.
“There are a lot of people in retirement with income that is not only provable but guaranteed to last for the rest of their life,” he says.
“Most lenders will now lend 95 per cent loan-to-value mortgages to someone who might lose their job tomorrow but won’t lend to someone who has a guaranteed income for life purely because of their age.
“Older borrowers are also more likely to want lower LTVs – mostly under 50 per cent – so the risk to lenders is virtually nil. The worst-case scenario is that the borrower dies or has to go into a care home.
“It is rather bizarre and a very obvious example of market failure.”