Lenders too strict on older borrowers
Rob Clifford is group commercial director at Shepherd Direct which is a shareholder at CENTURY 21 UK, Moneyquest and Stonebridge.
There is clearly momentum developing around the issue of lending to borrowers whose term might run into retirement, especially as there appears to be growing of evidence to suggest many lenders have been far too strict when applying affordability calculations. With scores of credit-worthy borrowers being turned down for mortgages because their full term might run past 65 years old, I think we as an industry should all acknowledge that work needs to be done in this area.
While some lenders are moving towards a more sensible approach to this type of lending, I get the sense there are others who may require the intervention of the regulator in order to change their ways. If recent missives are anything to go by, then the FSA is willing to countenance such action. Christopher Woolard, the regulator’s director of strategy and competition, said there were “potential areas where competition may not be working well and could be improved”, when talking about the mortgage market competition review it intends to carry out.
Lending to older borrowers has to be high on that competition review agenda, so even if some lenders are willing to act, then others may be forced by regulatory action to follow. Interestingly in the still currently unregulated sphere of buy-to-let, the issue of older borrowers is being tackled. A number of specialist buy-to-let lenders have recently upped their maximum age at application to 70/75/80 years old and are also willing to allow longer mortgage terms as well.
For instance, I believe Precise Mortgages are offering a maximum age at application of 80 and a maximum 30-year term, which could take the borrower up until their 110th birthday, which is surely unprecedented. This is perhaps tied up with a more flexible Governmental approach to passing property across to children or grandchildren as beneficiaries, given the expectation that buy-to-let landlords, for instance, may well prefer this option rather than selling off a full portfolio and passing on the proceeds. Within this market, there is also the ability to make property purchases through a limited company, the shares of which can then be passed over to the beneficiaries, rather than passing on individual properties.
In essence, what I think is required is an acceptance from lenders that ‘old age’ doesn’t necessarily start at the same point for every borrower, and that just because an individual is perhaps in their 70s doesn’t mean they can’t afford or be able to repay a mortgage over a certain term. I’m all for the MMR affordability measures, but they also have to be coupled with an understanding of the context; that we are living longer, that pensionable age is now completely flexible and not decided by the State alone, that many people want to hold onto and acquire more property right through their lifetimes, and that the ability to pass on that property needs to be considered.
From a mainstream residential perspective, this means that declining a borrower who might be in their 50s because they are looking for a 15-year-plus term should be accepted as overkill. While we have to acknowledge that the borrower may need to find their mortgage payments from any potential retirement income, there also needs to be an acceptance that predicting your retirement income is almost impossible, and that a lot can change in those intervening years. Any borrower could lose their job and not have the money to pay their mortgage tomorrow, let alone 20 years hence when they might want to retire.
It seems to me that we should return to working within known parameters, taking into account credit-worthiness and a track record of payment, rather than focusing on any borrowing that may need to be serviced in retirement. So it will be interesting to see whether the FCA choose to push for a more balanced approach from a sector that, I’m sure, it would never have imagined could be so problematic when the MMR rules were first drawn up.