Jeff Salway: Mortgage hopes rise for older borrowers

Building societies are turning down borrowers in their 50s, 60s and 70s for loans or limiting them to more expensive mortgages with shorter loan terms. Picture: Contributed

There could be light at the end of the tunnel for older borrowers struggling to secure affordable mortgages after building societies pledged to review the maximum age limits on loans.

The proposal is among the measures set out in a report from the Building Societies Association (BSA), which said its members were already more flexible on age limits than most high street banks.

Calls have intensified for lenders and regulators to do more to help older borrowers amid claims homeowners are being frozen out either because they are already retired, or will be when their mortgage term expires.

Lenders were criticised a year ago by Lord Newby for failing to act in the “spirit” of the mortgage market review (MMR), which took effect in April 2014 and prompted lenders to tighten their affordability rules. The Liberal Democrat peer also called on the Financial Conduct Authority (FCA) to investigate the treatment of older borrowers by lenders.

Little has changed since then, however, with most lenders still refusing to grant a mortgage that goes past the borrower’s planned retirement date.

Mark Dyason, director of Edinburgh Mortgage Advice, was recently asked by a lender to provide proof of a client’s retirement income because the proposed mortgage went past their state retirement age by 13 days.

“We are ruled by a ‘computer says no’ system, partially because most lenders want to securitise the books at a later date and exceptions can’t be part of that process,” said Dyason.

Older borrowers have borne the brunt of that, particularly since the MMR. The rules are aimed at preventing irresponsible lending and place the onus on lenders to take full responsibility for ensuring borrowers can repay their loan.

The effects of the MMR have been largely positive. But one consequence has been an increase in the curbs imposed by lenders on the age to which they’ll allow a mortgage to run. The result has been a rise in the number of borrowers in their 70s, 60s, 50s and even 40s being turned down for loans or limited to more expensive mortgages with shorter loan terms.

Lending to over-65s as a proportion of the mortgage market has fallen sharply since its 2007 peak, Council of Mortgage Lenders (CML) figures show. Meanwhile, the Age UK charity has said complaints about mortgages have increased significantly, with age limits and a lack of flexibility on remortgaging among the most common issues.

Building societies are among the exceptions to the post-MMR clampdown. Many still lend mortgages reaching into the borrower’s 80s, including several that don’t have maximum age rules but which instead assess borrowers on a case-by-case basis.

In its new interim report, “Lending Into Retirement”, the BSA points out that people aged 65 or over will account for around a quarter of the population by 2034. Additional factors such as rising house prices and an increase in the number of people working past their state pension age mean that people are buying homes later and need longer repayment terms.

Its research found that around half of 25 to 34-year- olds believe they’ll need a mortgage that stretches into their retirement.

Paul Broadhead, head of mortgage policy at the BSA, said: “As the average age of a first-time buyer continues to increase, borrowing into retirement is becoming increasingly commonplace, rather than a niche form of lending.

“The time is right to review lending policies, examine how advice is provided and to work closely with a range of organisations across different sectors to ensure that lenders are equipped with the appropriate tools to respond to the rapidly changing demographics across the UK.”

Another report published last week for the CML said more people are taking mortgage and non-mortgage debts into retirement, either as part of a deliberate strategy or because of financial difficulties.

The so-called pension “freedoms” launched in April could muddy the waters even further, it warned. With more retirees eschewing the guaranteed income provided by annuities in favour of greater flexibility, fewer people will have sufficient long-term pension income to “ensure financial resilience and an ability to cover the costs of their social care needs as they age”.

The report for the CML concluded that “the current environment does not adequately meet the needs of our ageing population”.

The trade body said it would publish proposals over the coming weeks aimed at addressing some of the issues raised in the report, while the FCA told the CML’s annual conference last week that it would look at how it could “support a market that works for all its customers”.

In the meantime, however, older borrowers wanting to work past their state retirement age face an uphill battle if they need a new mortgage deal.

The issue is especially acute for borrowers north of the Border looking to local lenders for a solution.

“Some of the smaller building societies in England and Wales have case-by-case underwriting for older clients as does new challenger bank Metro Bank,” said Dyason. “However we don’t yet have enough of this north of the Border, which is perhaps a challenge to our own smaller lenders.”