MMR: Lenders to be forced to assess income into retirement
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Where the loan term extends into retirement the regulator is now calling for lenders to assess income into retirement to ensure the mortgage remains affordable.
It says that while it recognises that it is difficult to predict pension income, it says it could be done by confirming that the applicant has a pension provision, confirm the details and take a view on the mortgage remaining affordable into retirement.
The FSA says that it recognises that this method is not foolproof and that there will always be an element of risk that the pension will not be sufficient.
But it says: “In our view this approach is preferable to the current situation where often there are no checks at all as to whether the applicant has income in retirement and the lender relies on warnings to remind the borrower to ensure they can afford their mortgage following retirement.”
Readers' comments (2)
Danny Lovey | 13 Jul 2010 9:13 am
Whilst this all seems sensible this policy has its limits as to what is silly. How for example do we know for certain at what age someone will retire? How do we know the goalposts will not moved further out on retirment age in the UK in the future, How can we be certain the Pope will remain a Cathloic?
If a client wants a 25 year mortgage till he is 70 and his retirement age is officially say 68 is it sensible to go into such detail like a letter from his employer he will work till he is 70? Of course not circumstances will change over time, his/her employment likely will and the chances are the applicant may wish to pay of his mortgage early, or indeed remortgage, move home or whatever.
That of course contrasts with someone taking out a 10 year mortgage say at age 60 when a more definative view can be taken and potential pensions etc be sensibly considered.
Also it is not true that lenders do not look at income into retirement - they mostly do and have for some time now and I would say that all mortgage brokers thatare credible do that before they even approach a lender
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Sam Palmer | 13 Jul 2010 10:17 am
i find it differcult to see why this is proposed as a problem. what the actual problem seems to be is the release of the property into circulation as people cannot afford mortgage post retirement.what can they afford? i feel protection is prescribed for these people against the vultures who circle round huge equity with low capital available. i would suggest that if the term was up to 70 then an increasing factor for reduced term is balanced with equity held and that a projection for equity capital risk over the term to leave a balance 0f 50%
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