Older mortgage borrowers ‘left out in the cold’
Lenders scared of offering mortgages to borrowers over the age of 40.
Mortgage borrowers over the age of 40 are likely to find their options severely restricted, as lenders are fearful of future accusations of mis-selling.
That’s according to a new report from the Intermediary Mortgage Lenders Association (IMLA), a trade body which covers all mortgage lenders who offer home loans through mortgage brokers. Members include such banking giants as Lloyds Banking Group, Barclays, Nationwide and Santander.
The report warns that the new rules imposed earlier this year, aimed at toughening up mortgage lending criteria, risk locking out borrowers whose loans will remain outstanding beyond the normal retirement age of 65.
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The Mortgage Market Review (MMR)
Back in April, the Financial Conduct Authority regulator introduced the Mortgage Market Review (MMR), which was designed to stamp out risky lending practices. For more on this have a read of Why finding a mortgage is set to get harder.
According to the IMLA, there’s a lack of clarity in those rules about lending to people beyond the normal retirement age.
Because of the prevalence of defined contribution pensions, it’s difficult to make an accurate guess on what a person’s income will likely be in retirement, and therefore how affordable a mortgage will be. As the rules require lenders to 'protect borrowers from themselves', lenders are imposing lower maximum age limits in order to avoid being accused of mis-selling in the future.
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Changing times
The problem with is, as a result of the astronomical house price growth seen over the last decade or so, many people are not buying a long-term family home until they are in their 40s or even 50s. But if they want a standard mortgage term of 25 years, they may not be able to get a mortgage.
The uncertainty over a person’s income in retirement is only likely to get worse with the new pension freedom rules coming in next year.
Peter Williams, executive director of the IMLA, argued that protecting borrowers from themselves should not rule out options that would benefit them financially and meet a clear need.
He added: “There are situations when a refusal to lend can prove to be to the borrower’s financial detriment. We need to strike a balance.”
The FCA is to conduct a review of the MMR next year to examine how effective it has been at enforcing responsible lending.
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