In a report entitled ‘The changing face of non-standard mortgage lending’, IMLA said some lenders have restricted older borrowers over 40 from accessing from their full range of mortgages because of uncertainties about retirement income in the MMR.
Private sector employees commonly hold defined contribution pensions which commonly prevent accurate predictions of their pension income, making it hard for lenders to determine how affordable a loan may prove beyond retirement.
A number of mortgage lenders have imposed lower maximum age limits rather than risk future accusations of breaching the rules.
IMLA called for the FCA to clarify its position on lending into retirement in its upcoming thematic review into the MMR.
Peter Williams, executive director of IMLA, said: “Efforts by the lending community to follow the spirit of MMR with new customers are being hampered by the very real concern that it may be cited against them in future
“Uncertain pension incomes make it difficult for lenders to assess mortgage affordability in later life, and this may become even harder when the new pension freedoms take effect next year.
“To avoid a situation where regulation brings about the extinction of mortgage terms that stretch into retirement, we need clarity and confirmation about where the boundaries of responsible lending truly lie.
“MMR has been a big step forwards but having put a strong framework in place for the future, attention must now focus on honing the template so the pendulum doesn't swing too far towards conservatism.”
People with large assets are also being unfairly targeted due to MMR’s emphasis on income and expenditure over assets and savings, the report warned.
What lenders require, IMLA said, is for flexibility to meet borrowers’ changing needs without fear of future censure.
In the case of catering for self-employed borrowers larger lenders have also lost the option to ‘fast-track’ borrowers with high credit scores, resulting in a more cumbersome process of manually checking accounts and financial statements.
As a result IMLA highlights how smaller lenders will be increasingly be relied on to take the mantle when it comes to supporting the self-employed.
Williams added: “There is still a place for the majority of non-standard borrowers in the post-MMR mortgage market.
“An expanse of products remain on offer, backed up by expert broker advice which is increasingly vital to help consumers pick their way through the maze and find a product to fit their circumstances.
“Nevertheless, there is the potential that MMR will have a long-term effect on the structure of the market, with large volume lenders increasingly focusing on the straightforward credit cases that are better suited to their streamlined systems while more complex cases – especially those with irregular incomes or needing loans into retirement – find a home with smaller lenders who specialise in understanding the complexities of such cases.
“We must ensure that any divergence in the marketplace does not result in excessive pricing for non-standard borrowers and that access to a full range of products continues for this growing army of consumers.”
