24 Oct Older and Wiser
Lenders don’t always agree.
Alistair Hargreaves, Executive Mortgage Consultant – John Charcol
Here at John Charcol we are receiving more and more enquiries from older or retired clients, who have been turned down by High Street lenders. As a rule, the High Street will only consider borrowers under 75 (Leeds Building Society are the one exception, and are happy to lend up to the age of 80, as long as the application is made before the client turns 70). The majority of mainstream banks and building societies are just not interested in clients over the age of 70. But why is this? The majority of cases for older people that I and my colleagues in John Charcol see tend to be ones where the loan to value ratio is very low, the client’s credit rating is often excellent and their income guaranteed (via pensions or annuities). You would think that as an underwriter, all of these would tick the relevant boxes for good quality, reliable clients.
However there are two issues that seem to worry lenders;
Firstly, these loans are often on interest only and usually with sale of property as a repayment plan. Even though rising house prices over the last few decades means that the loan to value is often very low, with the Mortgage Market Review (MMR) requiring lenders to be responsible for their client’s repayment strategies, banks run scared of interest only arrangements as they do not want to be held responsible if a client is unable to pay back the loan.
Secondly, and more specific to older clients, they are worried about so called “reputational risk”. This is the adverse publicity that a lender may generate by having to repossess a property from a vulnerable, retired person. So terrified are they of this scenario, banks will do almost anything to get out of this situation. I can understand this (just about) if a lender is asked to take on a new retired client, and they are uncomfortable about the case. However, this also happens to clients who have been with a lender for years, sometimes decades.
I have recently helped out a couple who have retired, and were coming to the end of their HSBC interest only mortgage. They had been with their lender for at least 20 years, and they were largely happy with the service. The mortgage was for £105,000, on a property valued at £900,000. Their debt had grown smaller over the years due to inflation, and they had assets in the background to repay the loan, however they did not want to do so at that point. Their pension incomes were more than sufficient to service the loan, and they asked their lender to allow them to keep the mortgage on interest only, for another five years. However this appeal was dismissed and they were given 6 months to find a new lender.
When we were arranging the mortgage the clients even said to me that they would stomach a 1% or 2% increase in their rate with their current lender, if they allowed them the extra five years. For them, as with many older clients, it’s about having the flexibility to be able to control when they sell their house or cash in their investments, and not being forced to do so.
If you are a client in or heading towards retirement, you be can pretty sure getting an interest only mortgage with a major lender will be challenging. Instead, at John Charcol we turn to the smaller, more bespoke lenders who have a more flexible approach to clients. The client’s above were placed with Harpenden Building Society, who has no arbitrary cut off point on age. There are lenders out there that can help – it’s just a case of knowing who to approach, so it makes sense to turn to a broker for help. As the UK’s demographic changes and we have a larger number of older clients looking to buy or remortgage then the larger lenders are going to need to look at their policies – if only because an increasing source of business is walking out of their doors to the smaller building societies.
The Mortgage Market Review, mentioned above, did not even consider the impact of its findings on older clients, except to make lenders confirm how their clients will afford their mortgages into retirement.
It pays to shop around if you’re approaching retirement; there are solutions available for older borrowers – even if the mainstream lenders are reluctant.