Are you hoping to get a mortgage? Well, it's not that easy. There are any number of difficulties you could face in your desire to become a homeowner, particularly since regulatory changes from the Mortgage Market Review came into effect earlier this year, with tighter affordability criteria pushing a lot of would-be buyers out of the market. But, there's one area that's come under stark criticism as a result of such changes – the rising incidence of older borrowers being refused a mortgage.
According to research from IMLA, older borrowers are being "frozen out" of the mortgage market as lenders are reluctant to accept those who could still have an outstanding mortgage beyond traditional retirement age. This even means those in their early-40s could find it tough to secure a mortgage deal, and given that many people have to delay buying their first home until this very age, it paints a worrying picture for the future.
The main reason for this is the difficulty in accurately predicting retirement income. Given that so much emphasis is now placed on affordability, with everything intrinsically linked to income, this poses a problem – lenders must ensure that mortgages remain affordable for the lifetime of the loan, but if there's no evidence of a stable retirement income, they're reluctant to lend for fear of breaching the rules.
However, this latest revelation is far from welcome. There's an assumption that lending into retirement poses extra risk for the lender and borrower, but in many cases, that risk simply isn't there. The ever-rising state pension age, combined with the increased preference for staying in work longer, mean that the "traditional" retirement age rarely applies, and in many cases, homeowners will continue working long into their sixties – and often well past the end date of the loan.
The findings have been met with wide-ranging criticism from the industry, as Paul Green, from over-50s experts Saga, comments: "The latest news that even those in their 40s face difficulties with obtaining or moving their mortgage deals because of their age shows just how crazy financial firms have become.
"People in their 40s can already see their parents having to work far beyond 65 now, so the chances of them being able to settle into retirement at such a youthful age are going to be unheard of. Freezing them out of the mortgage market or leaving them in expensive deals is another example of unjustified age discrimination. Banks need to move with the times and base lending decisions on ability to pay not on arbitrary age limits."
It's hoped that banks will indeed start to realise the error of their ways, and the IMLA is calling on regulators to focus on this issue in the forthcoming review of MMR rules. The body argues that the FCA must provide additional clarity so that lenders can offer the flexibility required to meet borrowers' changing needs without fear of breaching the rules, something that will benefit borrowers and lenders equally.
Peter Williams, executive director of IMLA, comments: "Uncertain pension incomes make it difficult for lenders to assess mortgage affordability in later life, and this may become even harder when the new pension freedoms take effect next year. To avoid a situation where regulation brings about the extinction of mortgage terms that stretch into retirement, we need clarity and confirmation about where the boundaries of responsible lending truly lie.
"MMR has been a big step forwards but having put a strong framework in place for the future, attention must now focus on honing the template so the pendulum doesn't swing too far towards conservatism… Restricting access to mortgage credit is the right decision in some circumstances for the consumers' long-term security, but equally there are situations when a refusal to lend can prove to be to the borrower's financial detriment. We need to strike a balance and the FCA review will be vital so that an update to the MMR rules can iron out some of these creases."
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