Fears of a future clampdown by regulators are preventing mortgage lenders from offering loans that stretch into people’s retirement, a new report shows.
The report from the Intermediary Mortgage Lenders Association (IMLA) examines the impact of new mortgage regulations on ‘non-standard’ customers – those who fall outside the core of salaried, credit-worthy borrowers who can pay off their loans before they retire.
Older borrowers, the self-employed and those with low incomes but high net-worth have all come under pressure from the new regulations introduced as part of the Mortgage Market Review.
IMLA is calling for the Financial Conduct Authority to make the rules clearer so that lenders can be more confident in lending to these ‘non-standard’ customers.
People seeking a loan which is likely to remain outstanding beyond their normal retirement age are particularly suffering, IMLA says. Most private sector employees now hold defined contribution pensions, which can make it hard to predict their pension income – meaning lenders can’t be certain the borrower will be able to afford the loan after retiring.
Lenders must ensure mortgages are affordable for the lifetime of the loan in order to ‘protect borrowers from themselves’, so these older borrowers are now seen as carrying extra risk for many lenders.
In response, many mortgage lenders have imposed lower maximum age limits rather than risk being accused of breaching the rules in future. But the rise in house prices means many borrowers are not managing to purchase an appropriate family home until their forties or even fifties. Those over 40 seeking a standard 25-year loan will be borrowing beyond a normal retirement age of 65 and are likely to find their options restricted.
IMLA executive director Peter Williams 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.
He adds: “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.”
