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Steve Webb demands evidence from lenders on pensions stance

Pensions minister Steve Webb has asked mortgage lenders for evidence on whether paying into a pension makes a borrower a better credit risk.

Webb met with the Council of Mortgage Lenders and Association of Mortgage Intermediaries in December after Money Marketing reported that some lenders take pension contributions into account when assessing affordability while others do not.

Brokers said this is pushing them to consider advising borrowers to stop their pension contributions. Webb later wrote to the CML and AMI to express concerns about the practice.

At the meeting, Webb asked lenders to investigate whether there is any evidence that pension savers are less likely to default on their mortgage, and whether this could be taken into account in lending decisions.

Webb says: “I remain of the view that choosing to save for a pension is a mark of financial responsibility and I would like to see the mortgage industry make efforts to better acknowledge this in their policies.

“On my suggestion, CML and AMI have agreed to consider this issue and I hope, in due course, it will be possible to identify data which would enable lenders to take such evidence of financial responsibility into consideration as part of lending decisions.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. What evidence is he talking about? I applied to my lender last month and asked what is my maximum borrowing limit – and guess what? They deducted the pension contributions from my earning.

    Next question…..

  2. I have never heard so much nonsense in all my life, having said that it was coming from a politician so what else would you expect!

  3. There are two considerations here. Firstly, lenders can have whatever criteria they want as long as it results in responsible lending. If they want to include pension contributions when assessing affordability then they are pefectly entitled to do so.

    Secondly, and perhaps the real point here, is the extent to which the FCA are interfering in those affordability decisions. They clearly do interfere through the rules and guidance they publish. The problem is that it’s not clear, evidenced by the fact that lenders are doing different things. Someone at the FCA simply needs to say whether pensions MUST be taken into account or not. If not then we’ll know that it’s the lender’s own decision.

    On the question of whether advisers (who are qualified to do so) should be advising client to stop their pensions to obtain a mortagage, that’s down to individual circumstances. The FCA bang on about behavioural economics and how firms should take account of real client behaviour. How about applying a bit of behavioural regulation? Is it really a surpise that clients that have a high motivation to get a mortagage will consider this option? If you create a game, don’t be surprised when people play it.

  4. Pension contributions are discretionary spending. It beggars belief that some lenders are stupid enough to deduct them from income in the first place. This new religion of budget analysis worries me. No matter how carefully you prepare income and expenditure with a client, it will always be a rough guide. It’s not what people are spending now that’s the real issue, its how well they react to financial adversity. A budget analysis will never tell you that. I would argue that someone who puts a lot into their pension is likely to be a safer financial bet because they are clearly more careful with money.

  5. Affordability assessments should be scrapped for LTVs below 50%. Interest only loans should be available up to 50% LTV. Interest only lifetime mortgages should be available from age 55 for up to 50% LTV. Very often people are being forced into the rental sector paying much more rent than they would pay on an interest only loan. Having been in the mortgage advising business for 25 years I know what I am talking about.

  6. Can we petition Mr Webb to go on some sort of training course?

  7. Lets be perfectly clear here. Anyone buying a house wants the house a hell of a lot more than they want their pension. So in dealing with needs and demands, if the noes house is higher priority and the “best” lender will take account of pension contributions as part of the affordability calcs then the broker is only doing his/her job properly by getting the client to sptop contributions in good enough time so that it won’t show up on the required bank statements when requested. Albeit a total fares that it has got to this stage, however as usual once the FCA gets involved in anything to do with market led business, it does tend to screw it up because it is totally incompetent in what it is actually doing. Those who make the decisions really do not have a clue about the end result and consequences of the decisions will be. The sad fact about this situation is that they couldn’t give a toss.

  8. Correct me if I am wrong, but not only is it an offence for a mortgage adviser who does not have pension permissions cannot advise someone to stop paying in to their pension (criminal offence), but even an adviser who is qualified to advise on pensions, but does not have AF3/G60 AND the required FCA permissions would breach their permissions were they to recommend an opt out of any employer contributing scheme whether it be Final Salary or a simple NEST AE scheme…….

  9. Spot on Phil.

    I do find Webb interesting as the majoityof his ideas come at things from the Consumers point of view (i.e. I don’t always get the feeling there is a hidden, political, agenda) and this is another good example – what Webb is seemingly implying is that lenders might want to relax their criteria if there is evidence pension savers are a lower risk than non-pension savers.

  10. @Phil Castle
    You’re not wrong but you’re not right either…

    You only commit a criminal offence if you are not authorised (section 19 FSMA, the ‘general prohibition’). If you are authorised but act outside of your permissions then you are in breach of the rules and it may be possible for a client to sue you as a result but it’s not a criminal offence (section 20 FSMA).

  11. @GA. That was what I was trying to say.
    Unauthorised = Criminal offence
    Authorised = outside permissions
    Not sure where this leaves an AR of a regulated firm and you only do mortgages as an AR for a firm that actually has full permissions.
    am I right in thinking that consumer credit is only regulated rather than authorised so not sure where someone who only has a CCL but no permissions falls now since FCA took over from OFT.
    What a mess……

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