Rob Clifford is chief executive of If I Were You and CENTURY 21 UK
From many recent headlines it might appear that anyone over the age of 40 who is looking for a mortgage should probably give up immediately due to a lack of options driven by lenders adopting a new stance.
The mainstream press has certainly cottoned on to the recent report by IMLA entitled, ‘The changing face of non-standard mortgage lending’, which included headline-grabbing anecdotal evidence that certain people over the age of 40 have been unable to secure a mortgage due to the fact their mortgage term stretches into retirement, and lenders are unclear about whether the borrower would be able to afford the mortgage beyond that point.
The MMR it would seem is still raising doubts for some lenders about whether they can justifiably agree to lend to individuals when their retirement income is such an unknown. Reading various missives over the past few weeks from lender trade bodies, some lenders are clearly fearful they will be subject to retrospective regulatory action should they offer loans to borrowers who, 20/25 years down the line, find they do not have retirement income to meet the monthly costs.
This has provided the catalyst for plenty of furrowing of brows and the rather fanciful leap of logic that over-40s are being extensively ‘frozen out’ of the mortgage market. Clearly, MMR has resulted in credit policy changes and greater affordability validation for lenders but it’s always been the case that an individual’s income beyond retirement is a best guess, particularly if borrowers were decades away from retirement.
My own view is that those in their 40s should not be seeing mortgage availability seriously curtailed by lenders on the basis that their proposed term strays slightly into retirement. I would fully understand lenders being focused on this issue for borrowers in their mid to late 50s who are looking at terms that take them well into retirement. However the industry is right to be baffled why some lenders are using a sledgehammer to crack a nut in terms of those in their 40s, particularly if they are first-time buyers. We all know that much can happen during a 25-year term and, while we must respect the fact that lenders have to examine affordability throughout the whole term, there does appear to have been an over-reaction in some quarters.
To give lenders their due, some appear to be hoping to illicit from the FCA a mandate to continue lending beyond retirement, and this is essentially a call for common sense. I suspect it is also a call for guidance and a re-evaluation of some of the more constrictive components of the MMR. Given the regulatory environment it is not surprising that some lenders have perhaps over-reacted but the regulator will hopefully acknowledge that there are some unintended consequences which result in lenders being over-zealous.
As Peter Williams, Executive Director of IMLA, put it: “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.”
For advisers, it is currently a tricky issue which can undermine relationships with clients given that many are having to tell them at just age 40 they can’t secure a mortgage due to the lender being unable to evidence or assess their likely household income at age 65. Expressed in that way, it does seem a deeply odd outcome, so we must hope that the regulator and lenders take a fresh look at this issue and opt to recalibrate.