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Steve Webb attacks lenders over ‘unintelligent’ pensions stance

Pensions minister Steve Webb is to meet with mortgage trade bodies to urge lenders to abandon their “unintelligent” approaches to pension contributions when assessing borrowers’ affordability.

Money Marketing reported last month that some lenders take pension contributions into account while others do not. Brokers said this is pushing them to consider advising borrowers to stop their pension contributions.

Webb wrote to the Council of Mortgage Lenders and the Association of Mortgage Intermediaries to express concerns about the practice.

Responding to the letter, CML director general Paul Smee says: “The scale of a pension contribution is, in many cases, material and the lender will need to take it into account to make sure the customer can afford the mortgage.

“I have contacted our members and can assure you they do not encourage customers to stop or to reduce pensions saving to obtain a particular level of mortgage.”

AMI chief executive Robert Sinclair says: “AMI will be reminding its members that they should not step outside their permissions, and suggesting that brokers consider the more prescient lenders who are in line with FCA thinking.”

Speaking to Money Marketing, Webb says: “I welcome the reassurance from CML that borrowers will not be encouraged to stop saving into a pension, but I remain concerned that this is exactly the type of behaviour which could be encouraged by the approach of some lenders.

“I’m now keen to get AMI and CML representatives together to discuss how we can get a fairer deal for mortgage borrowers which doesn’t penalise responsible pension saving.”

Webb says he is hopeful the CML will issue guidelines to members in the new year which require them to treat pensions differently to other outgoings.

He says: “A person who is putting money aside for their pension is a better risk to lend to. Just taking that as a minus number on the balance sheet is not a very intelligent approach.”


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Mr Webb, welcome to the real world of regulated advice at last. Its the FCA you need to start with. Get them to clarify what they want in terms of specifics. Lensers will then know for definite what they can do. Currently the FCA stance issues guidelines. The lenders interpret these and make their decisions. However with the fear of severe reprisals when future complaints come in is that the lender will be told “you interpreted the rules in the wrong way, that’s not what we meant so take a huge fine and pay billions in redress”. This is what has happened in the financial advice sector so lenders are trying to protect themselves.

  2. The law of unintended consequences strikes again.

    Has anyone ever thought of asking practitioners before setting the rules? Thought not.

  3. I’m a bit confused by this but how can it not be a good thing to include all expenses when determining affordability?

  4. David Ingram: I’m not an IFA but surely a pension contribution is an ‘optional’ expense which you can temporarily reduce or stop during any periods of high mortgage payments.

  5. “I have contacted our members and can assure you they do not encourage customers to stop or to reduce pensions saving to obtain a particular level of mortgage.”

    Quite correct…..other of course than also saying “you can’t have this mortgage if you carry on your pension”…..

    As pointed out it needs a clear regulatory statement on which insurers could rely. Unlikely to be forthcoming I’d have thought.

    And pension income could be discounted given it’s voluntary nature. To include it places a very sustantial section of the population in the scenario of being told they should effectively never save in a pension, given the need to maximise borrowing to fund any reasonable purchase in some parts of the country

    As an ex building society manager I would far rather lend to a responsible individual, concerned to save for their old age, than someone who can simply meet a blanket Head Office lending criteria. The individual who simply says “OK I’ll give up saving in my pension” lightly – suggests a propensity to giving up paying the mortgage when they’ve over-stretched the pastic.

  6. Simon Hewitt: absolutely right – but isn’t that where the problem has come from? If mortgage brokers do point out that pension contributions can be stopped they will be stepping into regulated space but if they assume the contributions will continue they may not be able to show affordability. For Steve Webb to suggest (as seems to be the case from the article) that lenders should just ignore pension contributions will potentially lead to unaffordable loans being granted.

  7. Typical politician – never worked in an industry but think they know best.

    Its like calling the banks for not lending and then telling them they need to increase their capital reserves.

  8. Rock and a hard place comes to mind. If you are contributing to a pension (as everyone should be), this in my opinion should be seen as a commitment and taken into account with affordability when applying for a mortgage. The same applies to car finance as you can always throw the keys into the finance company and hand the car back if you fell on hard times as often cars are bought far above the intended needs as a lifestyle choice, so it is hard to argue that you can stop pension contributions when you want too……..

    If all lenders adopted this approach a greater number of people would not over commit themselves to a lifestyle and property they cannot really afford, this creating a more stable society of everyone living within their means. This might knock house prices as demand would drop, but in turn is that not what is needed rather than a false property market always being propped up with help to buy, part rent part buy etc. Come on government, if peoples wages can’t support the house prices as they are, they have to drop, but the more we keep subsidising them the worst the situation gets for the future as these people will always be struggling.

    I strongly believe the taxation on second properties and how income and gains taxed on buy to let investments need to change to support a more stable housing market, the price of the market is driven by greed of investors rather than the real value of the actual house in terms of what is affordable and supportable from a wage point of view. Remove offsetting tax relief on mortgage interest and costs and have a higher gains tax on properties for investment properties would stop all this.

  9. >>”should be seen as a commitment and taken into account with affordability when applying for a mortgage”
    I agree with “taken into account” but to blindly assume that the commitment ‘amount’ is a fixed outgoing and cannot be changed to match circumstances is naive.

    After 25 years of a mortgage term, building a pension pot with contributions based on disposable income (maybe including some periods of no contributions when interest rates are very high), you would then have those mortgage payments available to contribute too. And come retirement, you then have an option to downsize and release that capital investment you made over the years.
    If you got turned down for a mortgage right at the start, then your pension contributions would still be limited since your dead-money rent payments would take priority; your outgoings don’t reduce after 25 years, you still have to pay rent out of your pension; and you don’t have a house to downsize from or to pass on to family.

    Wouldn’t the best solution to make an Affordability Report contain two lists of Outgoings values? One representing ‘normal’ circumstances and one for the ‘stress-test’ circumstances where you reduce your pension contributions; holiday savings; eating-out/cinema/cigs/beer/tv/clothing/groceries variable outgoings but keep all the major tax/insurance/electric/gas water non-optional outgoings? If you can do the latter honestly and still be able to pay the mortgage then surely you can afford it.

  10. What about Webb’s recklessly “unintelligent” statement that the government will have no concerns about people who cash in all their retirement savings to buy a Lamborghini? People on glass houses…….

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