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Older, wiser and barred from the mortgage market – Copland

by: David Copland
  • 02/12/2014
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Older, wiser and barred from the mortgage market – Copland
It seems ironic that at a time when we have a significant aging population that lenders are suddenly pulling back on lending that is likely to take people over retirement age.

Data from the Office of National Statistics (ONS) reveals that by 2020, 48% of the adult population will be over 50-years-old and these people will comprise 32% of the workforce. So what we can’t have is lenders shying away from this growing market.

Lenders appear to be living in apprehension of breaching Mortgage Market Review (MMR) affordability guidelines by lending to people into retirement, but as people do not legally have to retire anymore any retirement age is an arbitrary figure. In fact, the Bank of England said at its quarterly inflation briefing in Bristol last month that part of the reason that employment levels are so high is exactly because so many older people are choosing not to leave the workforce.

This apprehension of lending into retirement is having a knock-on effect in another areas too – that of guarantor mortgages. A growing number of people were acting as guarantors to help their children onto the housing ladder. But increasingly we are finding that if the child takes out a 25-year mortgage, a lender won’t let them act as guarantor if it takes the parents past retirement age – despite the fact that the child will likely remortgage the property a few years into the term and take on the whole mortgage themselves as their income rises.

Similarly some people looking to downsize are finding that they are no longer allowed to port their mortgage if the corresponding mortgage review shows up that their mortgage term extends into retirement. Such people are forced to redeem the mortgage and get a smaller one over a shorter term.

It is not logical for this situation to continue so I expect to see a significant amount of innovation regarding mortgage products for the over 50s in the next year or two.

The end of this year has been all about price wars as lenders compete to meet their lending targets. Next year I expect instead to see a criteria war – especially after the MMR thematic review in the middle of next year. By then lenders will have a much better idea of how far they can go under the MMR. The FCA has already stated that lenders have been more stringent than they expected, especially regarding transitional arrangements and porting, so once lenders have more concrete evidence of what the FCA will and will not permit I fully expect to see criteria loosened across the board.

David Copland is director of mortgage services for TMA

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