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.”