Damned if they do, damned if they don’t

Bob Hunt is chief executive of Paradigm Mortgage Services

Whilst there are always industry issues in our market which, to a lessor or greater extent distract us, there have been two mortgage areas which have secured the bulk of the headlines recently, namely the buy-to-let sector and lending into retirement. Both appear to be dominating discussions amongst stakeholders be they the regulators, the Ombudsman, lenders, advisers, distributors, or the clients themselves, and one can be forgiven for feeling at times overburdened with the varying opinions, which like it or not, do need to be considered.

In a very true sense, both areas of lending are firmly in the spotlight given they have been directly and indirectly affected by the changing state of the mortgage market, certainly since the introduction of the MMR. The combination of these two areas has also been brought into a sharper focus by the new pension freedoms which came into being last month.

The mortgage market at present appears to be finding it rather difficult to square a circle which involves borrowers either wanting to secure a residential mortgage which takes them into (and beyond) the traditional ‘retirement’ age, or involves retirees looking at using their newly-acquired pension pots in order to invest in property, primarily through the buy-to-let market.

Let’s take this second issue first, as I think we are close to a solution and, indeed, lenders have been able to move relatively quickly in developing their responses. It’s important to recognise here that those in retirement have always been able to purchase investment property but now, with the pension freedoms, it may become more commonplace. This is why many buy-to-let lenders have been looking at their underwriting criteria and reshaping them for a market which potentially could see more ‘silver landlords’ who could be holding onto their properties well into retirement.

Maximum ages on lending are being pushed out and lenders are much more open to retirees as buy-to-let mortgage borrowers. Our own recent exclusive buy-to-let deals with Precise Mortgages show the moves that are being made, for example, there are no minimum income requirements for experienced landlords however, for those that are not in the experienced bracket, pensions can be regarded as income and a withdrawal from a pension pot will be accepted as a deposit. One suspects that as retirees look to utilise these new-found freedoms, more lenders will be willing to move to this type of criteria.

So, within the buy-to-let market, there has been quick progress and movement. Whether this has been the same in terms of lending into retirement, from a residential perspective, is a moot point. Again, some lenders do seem willing to consider individual circumstances but, particularly in the mainstream market where automatic underwriting is more prevalent, changing systems and processes is much trickier. Thus there has been criticism that credit-worthy borrowers, who might be many years from potential retirement, are being declined because the last few years or so of their mortgage term might run into traditional retirement age and there is no formal idea of what their income might be at this stage.

Headlines which talk about borrowers in their 40s being denied a 25-year mortgage term have arisen but we should also be thinking about borrowers over this age, their current and future affordability situation and how this might impact on their ability to secure mortgage finance. It is a point, particularly post-MMR, which has moved to the top of many agendas, notably the CML.

The problem of course is that lenders appear to be in a ‘damned if they do, damned if they don’t’ situation when it comes to this type of lending. Of course they want to lend to credit-worthy borrowers based on the regulatory requirements, however they do not wish to lend to those who may have a greater propensity not to pay during the term. The stress-testing of mortgage payments was designed to lessen this type of borrowing and it just so happens that retirement incomes tend to be in the unknown bracket for most people. Some lenders are choosing to take an ultra-conservative approach to this and not lend, others have the ability and systems to be more flexible – the recent FOS ‘age discrimination’ case result also adds another layer of unnecessary complexity and uncertainty especially as financial services is exempt from the Equalities Act.

The aim here should be to secure some clarity and to offer all stakeholders a structured understanding of what is and isn’t acceptable. My own view is that no lender should be somehow cajoled into lending on deals which they do not wish to, given that they do not meet their criteria. Lenders have to satisfy both themselves and the regulations however FOS rulings against them have muddied the waters and, to my mind, may lead to further pull-back from the sector when a common-sense approach should be achievable which would allow those credit-worthy borrowers who have the ability and means to pay for their mortgages throughout their terms, continued access to the finance they need. Whatever their age.