Since the FSA first announced its Mortgage Market Review plans in February 2009, many mainstream lenders have tightened their criteria on affordability and lending into retirement.
Interest-only lending, the basis on which many who are currently entering retirement borrowed their mortgage, has essentially come to a halt, leaving thousands of borrowers facing a problem when it comes to refinancing.
The introduction of age caps by many mainstream lenders is also making it harder for older people to get a mortgage.
Lloyds Banking Group, Halifax, Santander and Nationwide will not lend if the mortgage term ends beyond the borrower’s 75th birthday. HSBC has the same rule for borrowers of repayment mortgages but lowers the age to 65 for interest-only. Barclays and Royal Bank of Scotland have a lower cut-off point with neither lending beyond 70.
John Charcol senior technical manager Ray Boulger has called on lenders to address the problem facing many borrowers who are either in retirement or approaching it.
Boulger says: “I cannot understand how lenders can be so prepared to throw money at first-time buyers at 95 per cent LTV and then be reluctant to offer solutions for borrowers in later life.
“First-time buyers, though crucial to a healthy housing market, could potentially lose their jobs the day after signing a mortgage. Retirees are on a fixed and guaranteed income for the duration. How is that a riskier proposition?”
Your Mortgage Decisions director Dominik Lipnicki says: “Times have changed and many borrowers still have a mortgage in later life. Lenders, however, have been very slow to adapt to this and for many, mortgage options are few and far between.
“I find it extraordinary that many lenders will fight over first-time buyers, often with very little payment history, and yet many older borrowers are left as mortgage prisoners on their existing SVR deal that is only likely to increase.”
London & Country associate communications director David Hollingworth says: “There has obviously been a focus with MMR on lending into retirement, with criteria tightening up substantially. That is perhaps partially because of the consultation on MMR leading banks to reduce such lending but also because of the problems experienced in the run-up to the crisis.
“Most lenders now top out at 75 years of age. You come across this issue where a number of older borrowers have taken out a mortgage because they have the income and want to use the lower rates on standard mortgages to pull out some equity from their property. What you find is that those people want to review their rates but it has become much harder to get longer terms.”
The equity release sector provides an alternative form of borrowing for older people but rates are generally higher than those in the mainstream mortgage market.
Lipnicki says: “While equity release is an option for some, it is usually only taken up because a standard mortgage is unavailable. This lending is more expensive and can pose serious inheritance issues, hence not a decision taken lightly.”
Key Retirement Solutions director Dean Mirfin says the contraction of lending in later life is a regrettable move. He says: “There are a lot of over-65s who cannot afford to service a mainstream mortgage, even under standard affordability. If they can, however, that is where we see a major problem.
“Lenders can see that some of these borrowers can easily afford their payments but they will not be given the loan on the basis of age. That is one of the saddest decisions taken by the market.”
“As people go through age bands, the availability of mortgages diminishes significantly. It’s an arbitrary decision to just say: “You are over a certain age. We don’t want to lend to you.”
Mirfin adds that the equity release sector has long lobbied for mainstream lenders and brokers to work alongside it. “We can service a vast amount of these borrowers who are turned away from banks and mainstream lenders simply because of age. Rates may be higher than most standard mortgages but we need brokers to be taking a more holistic approach to their advice to ensure every option is presented to applicants. It should never be the case that there is no alternative for those who can afford to repay what they borrow.”
Whether equity release gains a bigger share of the later-life lending market or we address the current situation with mainstream lenders, there is a fear that the problem will get worse before it improves.
Lipnicki says: “Questions must be asked whether it is treating customers fairly to treat borrowing past the standard expected retirement age in this way. Unfortunately, with the upcoming MMR, things are likely to get worse as lenders look to erase any potential regulatory risk.”