The regulator would be ‘stupid’ not to bring back retirement interest-only mortgages, according to advisers.
Last week Mortgage Strategy revealed the Financial Conduct Authority is consulting on whether to allow older borrowers to take out interest-only mortgages. The watchdog has proposed separating out lifetime mortgages and retirement income-only mortgages after calls for change from the industry.
Coreco director Andrew Montlake says: “Age should never be the defining factor on lending, it is about plausibility and affordability. Retirement has changed; many pensioners continue to work and have income from various sources. As long as they can provide affordability then their age shouldn’t matter.”
DC Financial Solutions director David Clark adds: “It seems stupid not to allow interest-only mortgages to older borrowers. The regulator needs to treat people like grown-ups. As long as people are aware they are not repaying the capital and understand the product then they should be allowed to do what they want.”
While experts say there should still be limitations – such as a maximum loan-to-value of 75 per cent, for example – they say the current criteria are a barrier to lending.
Clark says: “It seems as though the regulator is penalising people today for mistakes which were made in the past.”
Montlake adds: “If the client has have been advised professionally and correctly, and the loan is sensibly underwritten, there is no reason that older borrowers should not be able to take out an interest-only mortgage.”
If the FCA’s proposals go through it would see retirement interest-only mortgages and lifetime mortgages separated out. But some experts are concerned that this could hit the equity release market.
Retirement Advantage Equity Release head of marketing Alice Watson says: “Retirees should ensure they are considering the full range of solutions available to them. Lifetime mortgages are a viable and flexible option, and provide a number of safeguards that the proposed retirement interest-only mortgages may not offer.”
But advisers fear that if the rules are not relaxed, homeowners could be forced into unsuitable products. Chadney Bulgin mortgage partner Jonathan Clark says: “I regularly come across clients who have a maturing interest-only mortgage with no repayment vehicle in place who are forced either into selling or taking an equity-release product. They usually have a good income and high proportion of equity, so there is no reason a lender shouldn’t extend their term.”