By Martin Williamson, Head of Residential Property, Latimer Hinks Solicitors www.latimerhinks.co.uk
There may be problems afoot for older people trying to get a foothold on the property ladder or those looking to extend mortgages into retirement. A recent report has shown that a fear of a future clampdown by regulators is preventing mortgage lenders from offering loans that would still be payable when borrowers have retired.
The report from The Intermediary Mortgage Lenders Association (IMLA) examines the impact of post-financial crisis mortgage regulation on the growing army of non-standard customers who fall outside the traditional salaried borrower with a good credit score who can pay off their loans before a set retirement date. It comes among mounting complaints from "older borrowers, including some only in their 40s, about their inability to secure mortgages, even when their incomes are secure and they have large deposits or equity.
IMLA has stated that people looking to extend mortgages, or secure a new mortgage, which is likely to remain outstanding beyond their normal retirement age, are suffering from a lack of clarity in the Mortgage Market Review (MMR) rules. This is having the result that older borrowers are being frozen out of the mortgage market.
Most private sector employees now hold defined contribution (DC) pensions, which often prevent accurate predictions of their pension income. This makes it difficult for lenders to determine how affordable a loan could be in retirement.
With the MMR requiring lenders to ensure mortgages are affordable for the lifetime of the loan in order to protect borrowers from themselves, there is increasingly a level of frustration among older borrowers who are being declined. The scope for interpretation has convinced many lenders that granting mortgages into retirement now carries additional risk if borrowers find at a later date that their retirement income is not as anticipated.
In response, many mortgage lenders have imposed lower maximum age limits rather than risk future accusations of breaching the rules where customers pensions prove insufficient to keep up their mortgage repayments after they retire.
With house prices rising faster than incomes, many borrowers are not managing to purchase an appropriate family home until their forties or even fifties. But anyone over the age of 40 seeking a loan with a standard term of 25 years will be borrowing beyond a normal retirement age of 65 and is liable to find their options restricted.
IMLA argues the upcoming thematic review of the MMR by the Financial Conduct Authority, which is set to examine responsible lending in the first half of 2015, must provide extra clarity so that lenders can offer the options required to meet borrowers changing needs.
Please note: This article is intended as guidance only and does not constitute advice, financial or otherwise. No responsibility for loss occasioned/costs arising as a result of any act/failure to act on the basis of this article can be accepted by Latimer Hinks.