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.