The director general of the Council of Mortgage Lenders said “the effect of the pensions bombshell is going to ripple through the financial services sector and beyond, and mortgages are not immune. There is a lot for the CML to work through.”
Mr Smee said that the free advice on offer, on which the government and industry is consulting, will need to factor in mortgage debt, but he was not sure how much this would be able to be covered in a short, free session.
He said: “Many people may have interest-only mortgages, some of which will require a repayment vehicle. There should be no assumption that a pension pot can be that vehicle, even if in certain circumstances it might be appropriate.
“I want to know how debt issues will be covered in this conversation and what the hand-offs will be – as surely the main outcome of this preliminary conversation will be a series of further conversations. Lenders should be an early point of call where there are outstanding interest-only mortgages.”
Mr Smee also questioned whether the current status of lending into retirement – which is not forbidden, but not prevalent in the industry – needs to be considered again.
He said: “We need a new look at this – or perhaps even create a new product – in the light of a new pensions regime. If pension pots do not have to be taken as annuities, what view will lenders take on the ability of borrowers to service loans beyond retirement. And what about the relationship between the equity release market and the residential mortgage market?”
In the past, residential mortgages and equity release had been seen as separate, driven by separate regulatory regimes. However, Mr Smee asked: “Is this going to change with changes to pension structure? Are there going to have to be better bridges built between the two markets, so that those in retirement can segue between them without a grinding of gears?”
He said that, again, this could be an opportunity for a new market to develop that serves the 55 to 70 age group in a different way.
Dean Mirfin, group director for Lancashire-based Key Retirement Solutions, said: “The changes mean savers must look at all their assets before making a decision on retirement income.
“Equity release, this will be interesting in the context of the new pensions regime. People may end up doing equity release earlier on in life. Often people released equity for capital needs and it is tax-free, as it comes from the residence.
“Now, people may say that, for their capital needs, they might release equity with an interest rate of about 6 per cent, rather than take from the pension, which will incur a higher rate in tax. Equity release could fit alongside the pension fund, if people keep this invested, and you may see more products coming to the market with more palatable repayment structures to meet this different financial and tax-planning need.”
