Money Help Desk: Boomers in quandary on lending rules

First-time buyers rightly get the most attention - it is hugely difficult for them. But I wondered if you had any thoughts on the lending rules and how they could better serve the baby boomer market.

As a "boomer", I plan to downsize in a few years. I have a mortgage a little under 30 per cent of the value of my property and I'm looking for a product for just a few years to provide a 34 per cent loan-to-value.

But changing the loan sum will involve the new affordability hoops. I am an architect, and like everyone in the construction industry, we have had a difficult two years, although things have picked up a little recently. Boomers like me often cannot match the standard income rules - but we are not risky people and many of us have pretty healthy property assets.

If lenders could provide a secure way forward for the self-employed, asset rich, boomer who plans to downsize then this would be a very useful way to stimulate the market and assist boomers who, like a lot of canny Scots, have invested in their properties over the years.

If security of payment and homeowner wellbeing are the intention, a sum could be placed in a special account dedicated to the short loan period. This could be deposited from cash released from a re-mortgage, fixed interest, interest-only product designed for boomers.

What do you think? The alternative of self-certification is not obtainable and I'm not sure writing to my MP would produce a dramatic change.

DF, Edinburgh.

Ray Boulger, of mortgage broker, John Charcol writes:

The proposed FSA rules will make a difficult situation even worse for people like you because they propose affordability must be calculated on a repayment basis and on a maximum term of 25 years, even for interest -only mortgages. Therefore a relatively short-term, interest-only mortgage, which would be perfectly affordable for you, would be deemed unaffordable under the FSA's new rules.

One theoretical option might be to set the mortgage up for a 25-year term to get round the affordability rule and simply repay it early. However, I assume, as a baby boomer, you are not too far from retirement, which raises another issue. If you are employed, most lenders will assume you will retire at 65, although some are more flexible if you are self- employed.

Most lenders will not lend beyond the age of 75, and will want evidence that your income in retirement will be sufficient to service the mortgage up until then.

There are occasions when depositing sufficient cash with the lender, as you suggest, to cover interest payments for a year or two can be a useful way of giving the lender enough confidence to lend the amount required, but this would probably not be appropriate in your case as you would have to borrow more money to do this and a larger loan would make the affordability calculation even more of a problem.

Although many lenders have already tightened their interest-only criteria, and some no longer accept a sale of the property to downsize as an acceptable reason, others are more sensible and will look at each case on its merits. The big plus in your case is the amount of equity you already have in the house.

However, if the proposed FSA rules are confirmed, lenders will be banned from making sensible loans to people in your position who can easily afford the payments and have a realistic plan to repay the mortgage. Therefore, don't delay your remortgage application too long in case common sense doesn't prevail and the FSA proceeds with these rules as currently proposed. You will then have been made a mortgage prisoner by the FSA!

Dirty laundry

Following your article "Zero in on new credit card holiday bargains" (Business, July 11) I applied for a Halifax Clarity card as the benefits of use abroad are just what I needed for my next holiday

However, I have now read the small print and raised a query with the Halifax. Specifically, in clause 7.7 you are not allowed to transfer funds to the card which would leave you in credit, and avoid interest charges on cash withdrawals. I asked the open question of "what does this mean" and was told that small amounts are okay for say refunds, BUT YOU ARE NOT ALLOWED TO PRE-LOAD THE CARD WITH CREDIT as this will be deemed to be "money laundering" and the funds will be returned.

Bang goes one of the reasons for having the card for use abroad.

Teresa Hunter writes:

Thank you for pointing out this information. We contacted the Halifax, and the response, as you say, is to blame money laundering rules.

Their difficulty is that some other credit card companies do allow customers to pre-load their card with cash before going abroad, so they can use it to withdraw money and not face interest charges. These plastic issuers do not believe they are in breach of regulations.

It seems money laundering rules are guidance, and different organisations interpret them differently.

To be fair, these other cards will charge you 3 per cent for the withdrawal, which the Halifax card won't, and some may also levy a further 3 per cent foreign exchange loading.

If you pay the interest as soon as you get home, it is only clocking up at roughly 1 per cent per month. Alternatively, if you internet bank, you can transfer money to pay for the withdrawals while you are away, keeping interest negligible.