Customers as young as 40-something are being turned away from mainstream lenders for being “too old”.
No doubt most brokers can produce plenty of anecdotal evidence of lenders’ age discrimination but last month saw one case hit the headlines.
The Financial Ombudsman Service found in favour of a 40-something couple who were turned down for a mortgage by HSBC on the basis that the husband would have been over 65 by the end of the term. In the first case of its kind, the Ombudsman found HSBC guilty of being ‘unfair’, fined it £500 for ‘distress and inconvenience’, and told the bank to reconsider the couple’s loan application.
The case illustrates how age discrimination appears to have become one of the unintended consequences of the mortgage market review.
So as a broker, if lenders are telling you a particular client is too old for a mortgage, what alternatives do you have?
Specialist lender Shawbrook Bank has just announced a new partnership with secured loan broker V Loans which will offer a solution for older borrowers turned down for a remortgage by mainstream lenders. V Loans will offer a second charge mortgage secured against equity in the property.
V Loans managing director Marie Grundy says the aim is to lend responsibly and make sure borrowers aren’t excluded from the market simply due to a figure on their birth certificate.
“Our parent company specialises in later life borrowing so we are ideally placed to bridge that gap. We’ve done that by developing a bespoke product with Shawbrook Bank that lends on ability to pay rather than age,” she says, “We look at ability to pay over the term of the loan and income and expenditure pre and post-retirement.”
But what other alternatives do brokers have if their clients are rejected by mainstream lenders due to their age?
Daniel Bailey of Middleton Finance says older borrowers being turned down for a mortgage is something he sees on a regular basis. “The options are limited at the moment as the majority of lenders do not go past retirement age and if they do they require proof of income. Lenders also impose a maximum age of 70 or 75,” he says.
“Equity release is an option for some clients. One particular client in his early 70s needed to move to a bungalow due to health issues. He had a guaranteed pension income but no mortgage lender would lend to him. Equity release allowed him to move house and it made a huge difference to his life and health.”
Bailey’s client is not alone in being forced to turn to equity release to borrow in retirement.
Figures from Key Retirement show that a quarter of those who took out equity release plans in the first three months of 2015 used the money to clear an outstanding mortgage debt.
Simon Chalk of the Age Partnership says he’s seeing clients who own an unencumbered property but are turned down by mainstream lenders when trying to raise a mortgage on it.
He cites one recent client who at the age of 76 was going through a divorce. He owned a mortgage-free property worth £250,000 and wanted to mortgage the property to raise funds to pay off his ex-wife.
“He has a pension income of more than £1,600 a month and outgoings of less than half that – he has about £900 residual income per month,” says Chalk. “What he’d really like is an interest-only mortgage from a mainstream lender at 2 or 3%. However he’s been discriminated against on age alone as there is evident affordability yet he was turned down by lenders.”
The client’s mortgage broker referred him to the Age Partnership who arranged a £108,000 lifetime mortgage with Pure Retirement.
“It’s at 43.2% LTV and the interest rate is fixed at 6.99%. He will also get £1,500 cashback to help with costs. The interest will be rolled up to be paid when he dies,” says Chalk.
Have you experienced age discrimination against your “older” clients? Let us know below.