Some lenders in the first-charge mortgage market have been accused of shunning older borrowers for fear they could be falling short of the Mortgage Market Review rules.
The Intermediary Mortgage Lenders Association recently argued that the upcoming thematic review of the MMR by the FCA, needs to provide extra clarity about lending into retirement to avoid a situation where regulation brings about the extinction of mortgage terms that stretch into retirement.
Under the MMR rules, lenders need to prove the mortgage will be affordable for the duration of the loan – this however can be tricky past the point of retirement.
So where does this leave second-charge lenders? Are they also about to start clamping down on borrowers in retirement, and do brokers need to be extra cautious when it comes to advising the over 50s?
The Over 50s
Alistair Ewing, director of Blimey Loans, says lending to the over 50s in itself doesn’t present any problems, however the term of any proposed secured loan might.
“With regulation now coming under the FCA, lending into retirement is being looked at much more closely by our lenders,” he says. “So if the new loan is going to run past normal retirement age, lenders will want to see evidence of how repayments will be affordable – much like the mortgage market.”
He says 70 years old is becoming a common line in the sand with lenders like Shawbrook, who are looking for satisfactory pension forecasts if the loan term runs past this age.
Tim Wheeldon, managing director of Fluent Money, says while very few lenders have radically changed their underwriting criteria for those in retirement, he expects this may change.
He says: “Most lenders have a policy for lending into retirement which we have to adhere to, with some more stringent than others and asking for more proof of income.
“There hasn’t been a huge change since the FCA came along but I think there will be a big change when we move into the first mortgage regime in April 2016.
“I can see lending criteria tightening up for those in retirement,” he says, “with a bigger onus being placed on evidencing that people have thought about how they are going to borrow into retirement.
“There might also need to be a stronger emphasis from brokers when it comes to checking the borrower can afford the loan. If the lender doesn’t check it we are going to have to.”
Impact on Market
If lenders were to tighten up their criteria for the over 50s, would it have a large impact on the market?
“The average age of our borrowers is north of 40,” says Wheeldon, “so you have to assume that a number of those are in their 50s. We are not getting a lot of borrowers in their low 20s because they haven’t had chance to build equity in their properties.”
Steve Walker, managing director of Promise Solutions, however believes the market for those in retirement is a limited one,
“It’s a big niche area for the industry in general,” he says.
“There are a lot of lenders who will lend up to 85 years old at the end of the loan, some won’t go that far but there are an awful lot that will.
“Second-charge lenders tend to take a realistic and pragmatic approach as to what income is going to be available.
“The emphasis from lenders has changed though from whether the loan into retirement is plausible and has been explained, towards can we evidence it – that is the change we are seeing at the moment, with a little bit more evidence being looked for.”
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries and Association of Finance Brokers, says while he expects lenders to make some changes in light of the FCA, it will not be as black and white as it is in the first-charge market.
He says: “There is much more individual underwriting in the seconds market and it doesn’t have the straightjacket credit scoring system of the first-charge market. Everything tends to be a bit more individual.
“That might change as we go through regulation but there is still flexibility there at the moment.”
Appetite from Lenders
Another notable difference between the first and the second charge market is that lenders in the second-charge market do not appear to have lost their appetite to lend to the over 50s.
Ewing says: “Lenders are very much looking to lend to this age group, assuming they meet the criteria.”
Yet despite the lack of appetite from first-charge lenders, second-charge brokers are not seeing an increase in demand for their products for older borrowers.
Ewing says: “We have not noticed any increase in enquiries for this age group over the past 12 months.”
Walker agrees and says mortgage brokers are often not aware of what is on offer in the second-charge market.
He says: “Lending into retirement is one of the Unique Selling Points of second-charge market but brokers are often not aware of it.
“I heard on the radio the other day that in America they now treat 75 year olds as middle aged because 80% of people in this age group have nothing wrong with them – why shouldn’t these they want to go on holiday or invest in buy-to-let.
“If a borrower were to remortgage at the age of 55 the term they would get probably wouldn’t be as good as the one they want, therefore it is better to take out a second charge and leave their mortgage in place.”
The second-charge market seems to be adopting a different mind-set to those in the first-charge market when it comes to lending to the over 50s. As the market moves closer to April 2016 though, the sector will become more of a mirror image of the first-charge market, meaning loans for the over 80s may soon become a thing of the past.