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Later life lending hamstrung by minimum equity position – Shawbrook

by: Maeve Ward, managing director, residential mortgages, Shawbrook Bank
  • 21/09/2017
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Later life lending hamstrung by minimum equity position – Shawbrook
In July of this year, the FCA published its interim report into the ‘Retirement Outcomes Review’ looking at how the retirement income market is evolving since pension freedoms were introduced in April 2015.

Interestingly, the report has found that over one million pension pots have been accessed since the pension freedoms were introduced and that 53% of the pots accessed were fully withdrawn.

From those that were fully withdrawn, 14% of people used this money to pay off debts, including mortgage debt. The FCA also reported that the pension freedoms have ‘fundamentally changed’ when and how consumers access their pension pots with customers accessing their savings early and often before retirement. In fact, they found that 72% of pension pots had been accessed by consumers under the age of 65.

Barred from mortgage finance

What I have spoken about many times before is the difficulty that those aged 55 plus have in accessing mortgage finance, particularly since the introduction of the tighter lending restrictions following MMR. I am therefore wondering whether the FCA’s interim report, mentioned above, is further evidence of this?

Is this providing yet more proof that those over 55 are struggling to access finance and are therefore turning towards their pension pots, now that the new freedoms are in place, because there is so little option elsewhere? What I am concerned about is that this is potentially a dangerous situation, especially by those who are so young in their retirement as they risk of running out of savings later into their lives.

Perhaps this was the catalyst for the FCA to issue its consultation paper in September setting out plans to reintroduce retirement interest-only mortgages. In fact, they say “it has identified a regulatory barrier to a form of mortgage lending that meet the needs of some older borrowers”. At Shawbrook we welcome this review as we are champions of the older borrower, and which is why in March we launched our own interest-only mortgage for those aged 55 Plus to provide another way for borrowers to raise finance who want an alternative to equity release and those customers, that I mentioned earlier, who are turning to their pension pots even before their retirement has begun.

Unfortunately, despite Shawbrook and other lenders entering the market looking to offer more options to the older borrowers, we are still restricted in terms of what we can offer due to the existing regulations, particularly around the minimum equity position that is disadvantaging people in certain parts of the country.

Unfortunately, we are seeing customers on a daily basis that we are unable to help, so we would therefore be very supportive of any changes that lead on from the consultation that the FCA may make that would lend themselves to helping more customers into retirement.

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