Later LifeSep 21 2017

BSA turns on lenders over age limits after FCA criticism

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BSA turns on lenders over age limits after FCA criticism

Mortgage policy chief at the trade body for some of the nation's biggest lenders has backed the Financial Conduct Authority over its claims some mortgage providers need to do more for older borrowers.

It follows the regulator’s publication of a paper on the ageing population identifying issues in the mortgage sector that could lead to poor consumer outcomes.

These include accusations of opaque and complex lending criteria, which may prevent older consumers from accessing a mortgage product, the limited appetite among some lenders for later life lending, and a lack of innovation.

Paul Broadhead, head of mortgage policy at the Building Societies Association, said the industry needed to do more to address changing demographics.

He said: “Building societies have been at the forefront of driving change in the provision of financial products for the needs of older consumers.

“Over the past couple of years, the number of societies offering mortgages that will extend into a borrower's 80s and beyond has almost doubled.

“But this market will continue to grow dramatically and as we have repeatedly argued, other lenders will need to follow suit.”

But a spokesperson for Lloyds Banking Group said it had already taken action in this area, raising the maximum lending age to 80 in 2016.

They added: “As the shape of the population and its working habits continue to evolve, we continually review our mortgage products and policies to ensure they reflect the needs of our customers, including those planning to work for longer and those already in retirement.”

Meanwhile a spokesperson for Yorkshire Building Society questioned whether lenders should be approving those who are above a certain age.

They said: “As a responsible mutual lender, we generally do not believe it is in the interests of a borrower to lend to applicants who will be older than 75 at the end of their mortgage term, but we can assess cases on an individual basis, including those from borrowers who will be older than 75 at the end of their mortgage term. 

“For applicants who are within 10 years of retirement, affordability will be assessed using both their current income and their projected retirement income to ensure that the repayments remain affordable once they have retired.

“We constantly look to improve our products and services to ensure they best meet our customers’ needs, but have no plans at present to change this policy.”

The FCA’s data found the total amount of mortgage debt held by over-65s is projected to almost double from £20.1bn to £39.9bn by 2030 as a result of people buying later in life.

In its report the FCA said the share of borrowers aged 65 or over is set to go from one in six currently to one in four by 2050.

Many people coming to the end of interest-only mortgages have been looking to equity release products, which are more accessible for older borrowers, as a means of repaying the loans.

Lifetime mortgages are secured against the value of a property and repaid when the borrower’s property is sold after they die or enter long-term care.

While interest rates tend to be higher than on regular mortgages, increased competition in the sector has recently narrowed the gap between the product types.

Mortgage brokers have said larger lenders in particular could be doing more to cater for the needs of older borrowers, pointing out that smaller firms are currently driving innovation in later-life lending.

Mike Richards, director at London-based Mortgage Concepts Associates, said 50 per cent of his clients are older people looking to borrow money.

 “I would say there needs to be some involvement in that area from the larger lenders, who do not seem very keen to do something.

“If [older clients] want a normal mortgage, then I think there are some lenders coming into that field, but it needs a lot more competition from major lenders. Larger lenders do look outside the box, but not often.

“If you are still working at the age of 75, why should you not use the income to justify a mortgage? You don’t stop at 65 – you could go on another 10, 15 years.”

Mr Richards pointed out that lenders often use the same affordability criteria for older people as they do for younger borrowers.

While younger borrowers can repay the loan over a longer term, the shorter terms available for older borrowers means they do not meet the criteria.

Michelle Lawson, director at Hampshire-based Lawson Financial, said she agreed with the FCA’s findings, pointing out that pension income is a reliable source of income to use for repayments.

“If you assess on pension income, I really can’t see why a lender can’t go past 65 or 75,” she explained.

“I think there is a gap, and it is about time we came back to a case-by-case basis rather than computer-based assessment. If that comes back round, then hopefully they will change the underwriting.”

Ms Lawson pointed out that lenders will offer loans to the self-employed and people on probation periods even though their income is not necessarily guaranteed.

simon.allin@ft.com