Opinion  

Why the ombudsman might be wrong to hit HSBC

Ashley Wassall

A bank has refused a mortgage to existing borrowers, on the basis of a hard-headed application of arcane lending rules it has introduced since the MMR came into effect.

A couple in their forties have been refused a mortgage on a home in which they hold substantial equity, on the basis that the loan will persist beyond the state pension age for the husband.

Sounds like exactly the sort of thing we and others have been blustering about for months - and the good ol’ ombudsman has echoed that sentiment by upholding a complaint and forcing the bank in question, HSBC, to pay £500 compensation and reconsider the application.

The fly in the ointment is that the decision, reported in the Sunday Times yesterday, could well be wrong.

The loan was not a repayment mortgage, but an interest-only loan. This obviously means the £250,000 capital would have to have been repaid in full when the loan matures, in this case when the husband, whose exact age is not disclosed, would be in his late sixties.

Evoking sympathy for the couple, the paper highlighted repayments on the loan could be covered by either of the couple’s income alone and that the husband’s final salary pension - not his only pension pot - would also meet the monthly bills.

No word that I can see setting out a similarly ironclad strategy to repay the £250,000 maturity sum. What if the chap hits hard times, or one of the two needs to cover costly care fees?

HSBC has an age limit of 65 for interest-only mortgages and 75 for repayment mortgages. It seems eminently fair that the former would have a lower age, and by no means necessarily unfair that having approved a mortgage in principle it decided not to proceed in this case.

The Telegraph also carried two stories this weekend on the issue of older borrowers alighting in particular on policy changes at Halifax and Nationwide. It is a cause being taken up by many commentators, who lament that banks are not ‘in tune’ with a changing world.

It is true that pension age is no longer a cut off and the boundary between working and retirement is increasingly porous. But just as banks are rightly criticised for applying blanket rules, so we should not apply blanket judgements based on the tired cliche of age discrimination.

I’ve criticised in the strongest terms decisions of banks for borrowers looking to port or downsize, who are often being refused a continuation of preferential rates on specious grounds. The FCA, too, has cited potential TCF breaches with MMR transitional rules.

In this case, however, borrowing is being extended and HSBC’s decision is on legitimate commercial grounds.

It surely must be free to decide whether a mortgage including only a promissory commitment on the capital is extended to borrowers whose life is going to change irrevocably during the lifetime of the loan.