Posted on 15th May 2015

Are Mortgage Lenders Looking at Age of the Ability to Pay?

Martin Williamson, Head or Residential Property

Age discrimination may be banned in the workplace. But, there is no clear cut protection when it comes to the way lenders deal with older clients.

One of my earlier columns looked at how the impact of the post-financial crisis could freeze older borrowers out of the mortgage market.

Now a recent poll by Saga Personal Finance of 6,243 people aged 50 and above has revealed the extent to which consumers are being affected.

Twelve per cent of respondents aged between 50 and 59 said they believed they had been prevented from moving their mortgage to a more competitive deal because of their age.

The vast majority of people surveyed said lending criteria should be based on the ability to pay and not just a persons age, with just over half saying the Financial Ombudsman Service (FoS) should intervene in cases where mortgage lenders have not acted fairly.

Given that working lives are being extended with the raising of the state pension age to 66 by 2020, and then being linked to life expectancy, many believe lenders are failing to move with changing times.

People are also getting onto the property ladder later in life as they struggle to save up a deposit. The average age first-time buyer is now 36.

Another market changer is the likely increase in the number of older people looking to buy property, whether they change their main residence, or purchase a holiday home, by taking advantage of new pension freedoms.

There is such concern over the situation that it became part of the election campaign, with the Conservatives [AT1] promising a crackdown on "blatant age discrimination in the mortgage markets by appointing a minister for consumer protection.

The Council of Mortgage Lenders (CML) has also now pledged to take a look at the problem. CML director general Paul Smee called on the industry to explore ways of ensuring that older borrowers who can afford to take out mortgages are not precluded from doing so simply because of their age.

A working party has been set up to look at the issue. The action follows a complaint, upheld by the FoS, against HSBC after the bank denied a couple in their 40s a mortgage on the grounds of age.

But, until there is a sea-change in borrowers criteria, how do you secure a mortgage if the term of your loan stretches into your retirement?

Well, the obvious answer is to reduce the term of your mortgage. Most lenders like to see that it would be paid off before you hit retirement. But, reducing your term will mean monthly repayments will increase, leading to affordability questions.

Most lenders have a maximum age limit of between 65 and 75. But, it is worth looking at smaller providers as some dont have a set maximum, but will take individual circumstances into account.

Many lenders will now consider the nature of your work and whether you are likely to be working past state retirement age. So, if your job involves manual labour, its unlikely you will be approved for a longer term, but if youre office-based, you might be able to borrow over 30 or 35 years.

If your mortgage term does run past your retirement age, you will have to prove that you have a regular income. That usually means providing proof that you are paying into a company or private pension.

However, with action being promised by ministers and regulators, borrowing for the older lender who can afford repayments may get easier.

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.

Martin Williamson is Head of Residential Property at Latimer Hinks Solicitors in Darlington. Latimer Hinks has a team of around 40 people serving private and corporate clients. For further information: www.latimerhinks.co.uk or call 01325 341500