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Steve Webb ‘deeply concerned’ over mortgage lenders’ pensions stance

Pensions minister Steve Webb is “deeply concerned” some mortgage lenders are penalising borrowers for saving into a pension and is seeking assurance from lenders that the “counter-intuitive” practice will not continue, Money Marketing can reveal.

Webb has written to the Council of Mortgage Lenders and the Association of Mortgage Intermediaries after Money Marketing reported earlier this month that some lenders take pension contributions into account when assessing affordability while others do not.

Brokers said the stance of some lenders unfairly penalises more prudent borrowers, and is pushing them to consider advising borrowers to stop their pension contributions.

In a letter to CML director general Paul Smee, Webb says: “The Government has gone to great lengths to make saving for a pension more affordable and attractive.

“I was, therefore, deeply concerned to read that the stance of some lenders could be leading mortgage brokers to advise their clients to stop saving towards retirement or opt out of a workplace pension.

“Clearly, the MMR process was never intended to have this effect. Indeed, it appears utterly counter-intuitive for a person who demonstrates financial prudence and responsibility by saving for a pension to be penalised in the mortgage market.

“I would welcome any reassurance you might be able to provide that in future, responsible borrowers who choose to save into a pension scheme will not be penalised.”

In a letter to Ami chief executive Robert Sinclair, Webb asks for reassurance that borrowers saving into a pension will not be advised “inappropriately” by brokers.

Sinclair says pension contributions are discretionary and should not be taken into account by lenders.

He says: “We would welcome the CML joining us in that view and requesting lenders adopt a similar approach. Clearly it is inappropriate for intermediaries to suggest borrowers stop making contributions to a regulatory contract outside most brokers’ permissions.”

A CML spokesman says: “Under the FCA’s rules, firms are obliged to lend responsibly and take into account a borrower’s financial commitments in determining the size and suitability of a mortgage and whether the repayments are affordable.”

An FCA spokeswoman says there is no requirement under the MMR for pension contributions to be factored in, but it is for lenders to decide whether they do so.


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There are 23 comments at the moment, we would love to hear your opinion too.

  1. ‘The Government has gone to great lengths to make saving for a pension more affordable and attractive.’

    How pray tell? Can they confirm that since the introduction of pension simplification and all the political meddling since that the level of pension saving has increased? If not it is more unsubstantiated twaddle from those in power.

    And why would a mortgage lender ignore pension contributions when assessing affordability – you can imagine the claims a few years down the line when FOS decides that the lender should have taken them into account.

  2. Sean makes a great point and one that Steve Webb has within his power to solve. All government has to do is categorically state that pension contributions should not be included in affordability assessments and the job is done. There’s no point moaning.

    Lenders just know how this stuff comes back to bite them in future.

  3. Of course mortgage brokers should not be advising anyone to stop their pension contributions or their HP payments or their maintenance payments or………. But equally obviously they have to take them into account in order to determine net income and thus affordability.
    Come on Steve, you used to be one of the good guys!

  4. Whilst the article is correct, lenders are looking at pensions in different lights regarding affordability, it really irks me to see this statement “I was, therefore, deeply concerned to read that the stance of some lenders could be leading mortgage brokers to advise their clients to stop saving towards retirement or opt out of a workplace pension” In my opinion that is certainly not the advice any mortgage broker should be giving to any client. The reality is a good broker, will be recommending a mortgage lender that meets the clients circumstances as simple as that and this will take into account lenders across the market and certainly whilst drawing attention to what different lenders do, should not be advising them to stop contributing to pensions etc.

  5. Interest-only loans with sensible LTVs should be available against the tax-free element in pensions. People may find other ways to repay the borrowing during the course of a long mortgage contract.

  6. This bloke is doing his best to convince us he’s an idiot. If you spend money it’s not there. So if you have limited resources and a significant proportion of this goes on other things then you have less to pay the mortgage. If things get hard you will probably ditch the pension anyway, but not when AE comes in. So lenders are quite right in including pensions as an expenditure – that’s exactly what they are. What next? Not counting gym membership because it makes you healthier?

  7. What other option does the lender have? Damned if they do, damned if they don’t. How can they simply ignore an outgoing pension payment when assessing affordability, as required by the FCA. The fact some do and some don’t just demonstrates what a mess this all is at the moment. It’s time someone stood up, took responsibility and gave proper guidance about how things should be. The regime we currently work under changes like the wind. One week it’s okay to do something and the following week its not. Start there Steve.

  8. Of course, whilst mortgage brokers who do not have investment permissions cannot recommend a client reduces or stops their contributions on a specific product… they can lay out for a client what their options are in general terms without issue.

    I don’t think the lenders can be blamed here. A pension is expenditure and should be taken into account. Whilst it may be discretionary that’s categorically NOT the message the Government puts out or wants the public to believe. The more rules you create the more complicated it gets and trying to keep things consistent (not to mention unintended consequences) gets harder and harder.

    The FCA, quite rightly, focus on behavioural economics and ask firms to take account of how clients react in practice. What about behavioural regulation? It’s all very well creating more and more rules but some thought needs to be given to how firms will react and act in practice. What’s good for the goose…

    Sean’s FOS point is well made. What’s their view on this? Practically speaking it’s the one that counts but we won’t know until the damage is done and they bash someone over the head.

  9. I don’t think we ever did a self cert mortgage for similar reasons. Damned if you do and of you don’t as Harry & Junker say. We use Truth/ Priesthood so all expenditure goes in and you can see of proposed expenditure exceeds income and if it does, something has to give, either less to pension or no house move…. Glad we stopped doing mortgages pre MMR, we’ll wait for the dust to settle before getting active again.

  10. Rt Hon Sir Arthur Streeb-Greebling 29th October 2014 at 9:48 am

    “The Government has gone to great lengths to make saving for a pension more affordable and attractive”

    really? In what way is that Steve?

  11. Another outbreak of “foot in mouth” from Webby the clown of the coalition circus.

  12. Liberal Democrat. What do you expect?

    Current thoughts in Parliament – Lib Dem election vote due to collapse, election impossible to call.

    He’s out of a job then!

    Bye bye!

  13. Affordability calculations are unnecessary. How can a 25 year commitment be assessed by a check at one point in time? Do lenders take into consideration the fact that a spouse is on extended maternity leave and will return to work? Do they take automatic increments into account? Do they take prospects of promotion into account? Do they take into account the number of hours worked when there is the possibility of increased hours with extra money available? Do they take other assets into account? Self cert mortgages with a sensible LTV should be reintroduced to get the housing market on the move outside London.

  14. @Ken – affordability is relevant both on day one as 1. if you cant afford it you need to know. 2. if you can afford to do it ONLY if you cut back something else, you nee to know so you can prorotise and make an informed decision. 3. if you can only afford to do it if you both work, you need to know as you may need to choose between a luxury home or a bigger home to accomodate children 4. you may want a larger home now ~( we had a 5 bed detached) and smaller after the children leave (we now have a 2bed appartment). We didn’t fund to repay the 5 bed as we knew wed downsize. this is where interest only (or part) removal by the MMR is flawed.

  15. “Clearly, the MMR process was never intended to have this effect”.

    Ah, the “unintended consequences” scenario – always crops up, I never understand why people don’t have some process for addressing such issues – no forum / committee / conact points / co-ordination.

    Reality is that an affordability assessment is only a snapshot in time. Once the client’s got the mortgage, they can do what they like – take a pension, sign for HP, run up credit cards and so on. As long as the mortgage payments are made, what;s the lender going to do – sue for repossion because the borrower has had a spend up….like to see that headline….”lender kicks defenceless family out of their home despite being up to date with the mortgage, because they didn’t approve their spending pattern,”

    About time there was some common sense used – discrtionary expenditure is just that. Past track record and general evidence of monetary prudence is a much better indicator than start with a number, take away other numbers, then mulitply by Y – and hey presto computer says yay / nay.

    As en ex-building society menager there were people I’d lend hypothetically over the top to, because they demonstrated care and thought about their committments, and equally some people who I wouldn’t lend half the formula limit to, because they didn’t.

  16. The logical strategy for would-be mortgagees would seem to be to suspend their pension contributions 6 months before applying for a loan and then, once they’ve got it, resuming them as and when finances permit. Not difficult really. You can’t do everything you want to all in one go.

  17. @ Chipping

    “”Clearly, the MMR process was never intended to have this effect”.

    Of course it was. It was there to ensure that people didn’t borrow what the couldn’t afford to repay and to stop the irresponsible lending. Back in 2007 all you had to do was to stand upright and you got any size of mortgage you wanted.

    The BoE was paranoid (quite rightly) about having a situation that they had in some cities in the USA where people were just posting their keys and the hoses were empty and boarded up.

    It’s just a shame that this attempt at fiscal solvency hasn’t been extended to credit card and all the other far too easily obtained debt that is swilling around. But then our economy is based on people going to the shops and spending what they don’t have.

  18. Affordability is a joke. I have clients affording to pay rent at twice the amount of a mortgage premium but still fail idiotic affordability checks.

  19. Harry – the quote is directly from Steve webbs speach, and relates to his assertion that MMR was not intended to trigger people being forced to opt out of employers pension schemes….. Whether or not contributions should or should not be taken into account may be a matter for debate, but I doubt the FCA envisaged that they were promoting opt outs from NEST when they drafted the rules.

    As to affordability, I’m completely with you on the aim to prevent reckless borrowing, just that in my experience of approving loans (and I do accept that’s purely anecdotal), a formulaic approach with no sensible intervention doesn’t especially achieve that. Indeed the formula can result in some instances people being lent too much.

    I’m not advicating self cert (never liked that), plus I always took the view that income should be verified together with taking previous lenders references (even when the Society I worked for said they weren’t necessary). Always took the view one had to carefully double check the information, but a consideration of each indiviudals background had some bearing on whether or not some (reasonable) discretion could sensibly be excercised. (and I do mean reasonable, not any old how much do you want approach!).

    Sadly, I guess I have to admit to sharing some attitudes with the old “Mr Mannering” approach, of what were then Branch Managers. A complete dinosaur – I confess…..

  20. Quietly resigned 29th October 2014 at 2:39 pm

    Advisers ‘deeply concerned’ over Steve Webb.

  21. “Clearly, the MMR process was never intended to have this effect. Indeed, it appears utterly counter-intuitive for a person who demonstrates financial prudence and responsibility by saving for a pension to be penalised in the mortgage market.” Financial prudence is key. Every single mortgage application under 50% LTV should be interest only, fully flexible, and self cert. Who is going to throw away 50% of their main asset in life?

  22. How can he penalise lenders for implementing his own FCA’s cobbled together MMR criteria. Reap what you sow, it should have been killed at birth when they took power. Yet again another unintended consequence!!!

  23. Julian – your note re ceasing contributions then starting, is much in line with my own. But it’s not perhaps quite so straightforward for members of employers schemes, who may then have limitations on their ability to rejoin.

    Becomes a more complex equasion I guess trying to balance out the “this is the best mortgage rate” option, with “and this is how much your pensions arrangements will suffer if you leave the scheme, which you’d have to do to get this deal” calculations – further balanced abainst the “this is the next best deal which wouldn’t mean opting out”.

    Can’t imagine many (if any??) circumstances where opting out of an employers scheme would be a good idea, but I can picture some clients, taking the short term view, wanting to go that route. And if they do opt out, will they get round to re-joining – and how much verbiage would one need on file to provide a thick enough defence…….

    As I think someone else has said elsewhere, glad I’m not into mortgages……

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