As we know, there are an increasing number of people aged 65 and over still paying their mortgage following a relaxation in the rules phasing out a default retirement age.
People can now work as long as they want to. This poses a fresh challenge for the Financial Conduct Authority (FCA), and ultimately mortgage brokers, to ensure that the aspirations of those in later life are encouraged while ensuring proper procedures are in place to minimise risk.
The FCA has asked firms to apply more scrutiny to applicants who are in later life, including more detailed information of income as retirement approaches. One of the other key areas that firms may consider is how the lender will protect its position should the applicant encounter sudden health complications and how the mortgagor’s affairs are correctly managed should ill health affect mental capacity.
During the mortgage interview brokers may want to ask older borrowers to consider that a power of attorney document is put in place. That way if an applicant becomes ill there is an appointed person who can legally access their bank so they can authorise continuing mortgage payments.
When someone becomes ill (or simply needs an operation which means they will be incapacitated for a period of time), there is no inherent right for family members to act on their behalf.
The only way loved ones can assist is if and when a document called a lasting power of attorney (LPA), is created by that individual, formally appointing their loved one to act for them.
Mortgage brokers should have some understanding of the nature and effect of LPAs.
There are two types of LPAs:
– A property and financial affairs LPA – this gives your attorney the authority to deal with your finances and property as you specify, including managing your money
– A health and welfare LPA – this allows your attorney to make health and welfare care decisions on your behalf when you lack capacity to make those decisions yourself.
An LPA is a legal document that is in a prescribed form. The attorney is usually a loved one, but can be anyone the applicant trusts. Two people can jointly be appointed and the applicant can specify what actions they are allowed to take if the applicant becomes ill.
When can the attorney act?
The attorney can act only when the document is signed both by the applicant and a certificate provider. This is to certify the applicant understands the nature and effect of the document and that the applicant is under no pressure or duress to enter into the document.
Other restrictions can be included within the document and it must be registered at the Office of Public Guardians before it is used. The property and financial affairs LPA can be used both when the applicant has capacity and when he lacks capacity, unless there is a restriction in the document. The health and welfare LPA power can only be used by the applicant’s attorneys if the applicant lacks mental capacity.
The role of an attorney
The role of an attorney is invaluable for those who are ill and can’t access their own money to pay bills. If someone is incapacitated, they may not be in a position to make mortgage payments. It might be that their income stops, or is significantly reduced when they are taken ill. This might mean that someone needs to access their capital savings and move money around to continue the vital payments.
An attorney must always act in the best interests of the person giving the power (called the donor). This means always considering what the donor would have wanted in a certain set of circumstances, had they been able to make the decision. The attorney role is onerous and they are accountable to the court. They will need to keep strict records of all transactions in relation to the donor’s bank accounts.
Finally, firms should be aware that LPAs replace the old style enduring powers of attorney (EPA). These documents, if already properly executed, are still valid and work in a very similar way. However, they can no longer be executed, so if no document is already in place, an LPA is the only option available.
If an LPA is not signed, an individual relies on an arduous 32-week court process where the Court of Protection will decide who will be appointed to manage an individual’s affairs. The process is complex, time consuming and expensive. In most cases an LPA is the best precaution to put in place for all individuals as part of life planning.
Stowe Family Law specialises in wills, tax and probate and can provide more information about LPAs.
Jane Gray heads up the wills, tax, trusts and probate team with 15 years’ experience. Gray is a fully qualified member of the Society of Trusts and Estate practitioners (STEP) and an Associate Member of Solicitors for the Elderly (SFE).