Mortgage providers must understand and respond to the increasing numbers of retirees taking loans into retirement and ensure they re-think lending policies which could discrimate against older borrowers, the director of think-tank International Longevity Centre-UK has said.
Speaking at a Council of Mortgage Lenders conference, David Sinclair urged the industry to ensure they do not discriminate on basis of age, amid a growing body of anecdotal evidence that older borrowers are facing greater challenges since the mortgage market review was implemented.
The comments also follow a landmark decision by the Financial Ombudsman Service that saw HSBC ordered to review a decision to refuse a loan to a couple because it would persist beyond the husband’s pension age.
Since 2010, both the number and percentage of mortgages extending into retirement has increased, according to CML statistics. A 2013 report by the Personal Finance Research Centre also found that one in five of all households headed by someone aged 50 or over had outstanding mortgage borrowing on their main home in 2008-10.
The same research revealed that one in ten older households (65+) had outstanding mortgage borrowing on their main residence and 65-69 year-old households with mortgage debt still owed on average £55,200.
Earlier this year the CML revealed details of a working party which will look at the issues faced by the growing number of borrowers age 65 and over, including pension reforms.
While lending criteria has been tightened across the board as a consequence of first the credit crunch and then the Mortgage Market Review, Mr Sinclair argued that this does not fully explain the rising numbers of people being excluded from the market purely on the basis of age.
He said that the industry and regulators have been struggling to respond to ageing and demographic change, adding that he was particularly worried about those retirees with interest only mortgages but no linked investment.
“Whilst the introduction of pension freedoms could be a boon to the buy-to-let sector, older people should make sure they take advice before making the jump.
“With older people holding almost £1,400bn in wealth in their homes, equity release is going to be an attractive way of supplementing a pension for many,” he commented, adding that the industry needs to ensure that the income poor asset rich pensioners are well served by this market.
“That said, the recent growth in the number of people aged 55-64 taking equity release is potentially very worrying.”
Mr Sinclair added that older people should think very carefully before looking at buy-to-let for a return on their pension savings, in the wake of claims that pension reforms would see many releasing cash from their pension to add to their property portfolio.
Outside the south-east, UK house prices in many areas remain below inflation adjusted 2007 levels, with Mr Sinclair pointing out that property investments can be risky and do not guarantee returns.