Lending into retirement must be one of the more emotive issues facing our market, with most brokers having strong feelings on the matter.
If you were to search for the root of the problem, it would likely be the period before the MMR when lenders tried to pre-empt the make-up of the final rules on retirement lending.
The FCA took a sensible, non-prescriptive stance on the issue, merely dictating that lenders should check if a borrower could afford their loan in retirement. As it states in the MMR final rules: “It is not our intention to prevent older customers from accessing mortgage finance. There is no reason why older customers cannot obtain a mortgage under the new rules.”
Unfortunately, this has not always been the case. Yes, there are options in the market for older borrowers, but these are generally on offer from small building societies that lend small amounts.
Things have not been helped by the Chancellor’s pension reforms, giving savers greater freedom over their pots. Lenders argue this has made it harder to gauge retirement incomes because savers could release large sums of money as a lumpsum.
But 22 of the 44 members of the Building Societies Association lend to age 80 or 85, or have no age limits at all. The trade body insists that more members will ease their policies later this year.
By contrast, none of the major banks will lend beyond age 75. In fact, Barclays and Royal Bank of Scotland insist that borrowers repay their loans by the time they reach 70.
The obvious question is: if the building societies can do it, why are the banks struggling?
Many argue it is more difficult for the big banks, whose industrial approach to lending means individually underwriting cases is near impossible. But in the past, banks had more lenient stances on lending into retirement.
It would be a shame if this type of lending remained niche and the preserve of small building societies. Banks may never match mutuals for leniency but there has to be a middle ground that is better for older customers.