Large high-street lenders have started to crack down on borrowers who are applying for a mortgage that might take until after state retirement age to pay off.
Despite incoming Budget changes that will see people receive a significant pot of money on retirement, Lloyds Banking Group and Nationwide have said the mortgage market review rules have forced them to make tougher checks on applicants, to ensure they can afford to repay loans.
To this extent, Lloyds Banking Group and Nationwide have told brokers and applicants they must supply evidence of what applicants’ income will be after they reach the state retirement age – currently 65 for men, and 62 for women.
Repayments cannot depend on the state pension, which will rise to £155 a week from 2016, nor can applicants include investments and other savings.
Instead, those who will be making repayments after the state pension age must prove they are paying in to a private or company pension. Anyone without personal provisions will be turned down, or asked to pay off their loan before they retire.
Siobhan McCluskey, senior media relations manager at Lloyds Bank, said the lender was only using evidence of pension income if the mortgage term extended beyond the borrower’s retirement. She said this practice had been standard for some years now.
Jill Parsons, spokesman for Nationwide, said: “The term of a Nationwide mortgage for a new applicant must not extend beyond the age of 75. For existing borrowers, there may be a degree of flexibility, but for new applications the mortgage must be repaid on or before the eldest applicant’s 75th birthday.
“All applications are assessed on an individual basis based on a number of factors, including affordability and credit scoring. As such, evidence of pensions may form a part of a wider income and affordability assessment as part of the application process, if it is appropriate. Generally, it will be considered relevant if the term of the mortgage extends close to retirement age.”
Simon Webster, managing director of Kent based IFA firm Facts & Figures, said: “There are the very rich at the top, the very poor at the bottom and most are somewhere in the middle - it’s the normal distribution curve one might expect. Clearly anything that can be done to improve the lot of the poorest is always welcome. We should also remember that the poorest tend to live in rented accommodation and receive, then spend weekly benefits.”
