Calder (pictured) made the statement as part of a panel debate at The Mortgage and Protection Event in Birminham. Jeremy Duncombe, director of the Legal & General Mortgage Club, asked him what he thought of the regulator’s comment, in an earlier speech, that pensions were not a committed expenditure.
“Is a pension something that is really flexible? Do you really want that to be the first thing you change on your monthly outgoings if interest rates start to rise and you start to see affordability squeezes? I don’t think it is. I don’t think that it’s prudent lending,” said Calder.
Earlier in the day, Lynda Blackwell, manager of mortgages and mutuals for the Financial Conduct Authority (FCA) said that the FCA did not require lenders to take pension payments into account. Blackwell said it was 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.
Blackwell said she hoped lenders would use common sense but admitted that due to the ‘highly automated’ nature of their processes, common sense often came after the event.
Calder said that golf and gym memberships and multiple holidays were expenses which should be considered as flexible areas of expenditure not retirement savings.
“I don’t think that this is particularly prudent for the customer,” said Calder.
“Particularly customers who might be years away from retirement versus quite close to retirement.”
In the question and answer session following Blackwell’s speech a broker told Blackwell that Coventry Building Society and Virgin Money were deducting pension outgoings from a borrower’s income to calculate affordability.
A spokesperson for Coventry Building Society said it takes all the customer’s financial commitments into account including pension commitments when assessing affordability and 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 customers to compromise their standard of living in retirement because they have over committed to a mortgage earlier in life. But a spokesperson said in light of the FCA’s comments it intended to review its approach to make sure it remained appropriate.