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TMPE2014: Pensions not a committed expense, says FCA

by: Samantha Partington
  • 18/11/2014
  • 0
Brokers challenged the Financial Conduct Regulation's (FCA) Lynda Blackwell over her statement that she hoped ‘common sense will prevail' among lenders choosing to use pension contributions in affordability assessments.

Blackwell (pictured) told advisers, at The Mortgage and Protection Event in Birmingham, that the FCA did not require lenders to take pension requirements into account because ‘they are not considered to be committed expenditure”.

The regulator said pension payments were flexible and could be reduced for a period to make the mortgage affordable.

But in the question and answer session which followed, a broker told Blackwell that common sense was not being exercised as lenders like Coventry Building Society and Virgin Money insisted borrowers’ pensions were deducted as an outgoing.

Blackwell, responding to the broker’s point and his request that the regulator speak to the lenders saying problems arose because of the highly automated nature of lenders’ processes.

“The way that some lenders have built their processes means that you are basically going through a machine, like a sausage machine, and what they have to do is, somebody actually has to switch something off, you actually have to do something, to try and add an exception. To try and apply common sense and to try and think about that customer they do it after the event.”

The regulator is speaking to firms when their names come up repeatedly to try and find out why they are acting in a certain way.

A spokesperson for Coventry Building Society said it takes all the customer’s financial commitments into account including pension commitments when assessing affordability and has no plans to change its approach but will continually review its policies.

Virgin Money said it includes pensions in the affordability assessment because it does not want to encourage a customers to compromise their standard of living in retirement due to over committment to a mortgage earlier in life.

But a spokesperson for the lender said in light of the FCA’s comments it intended to review its approach to make sure it remained appropriate.

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