In yesterday’s newsletter the FOS published a number of case studies regarding older borrowers who went to the Ombudsman for help and the FOS ruled in their favour, forcing the lenders to extend their mortgage terms indefinitely.
Mirfin, technical director at Key Retirement, said: “It’s quite an arbitrary decision to say the lender should keep on lending in that way and the borrower should keep on borrowing without any view of whether they can afford it.
“Being able to morph from one type of lending to another is worrying. Is rolling these loans into lifetime the best solution?
“I think it’s better to stress test it again and look at all the available options.”
In one case a borrower in his 80s discovered his interest-only mortgage had a 25-year term rather than being a lifetime mortgage, meaning he would have to sell up in his 90s. And in another a widow in her 80s wanted to convert her interest-only mortgage into a lifetime mortgage rather than sell up.
In both instances the FOS ruled that the mortgage company had to extend the term of the interest-only mortgage indefinitely because the borrowers were put in the unfortunate position by a poor lending decision.
Mirfin reckoned the decisions paper over the cracks by allowing risky borrowing to continue, while he said elderly borrowers in such a situation should be made aware of all their options rather than sticking rigidly with the same lender on the same deal.
He added: “In terms of competition if it becomes very easy to move from a mortgage product to a fundamentally different mortgage type it’s very easy for people to become trapped with their lender as opposed to seeing all the options.
“Nothing has changed with that loan apart from the end date. The FOS has resolved the issue of the end date but ignored the impact of them not being able to repay.”
