Lenders are adopting illogical criteria for retirement deals

From Helen Pierson

I am a mortgage broker and would like to highlight the illogical criteria lenders adopt in respect of lending into retirement.

I know this area looks as though it might become a hot potato for the FSA but ridiculous, unworkable criteria won’t help.

At the 11th hour Halifax asked for evidence of pension income plus a tax- free lump sum for a client aged 52 who wants a 23-year term. I called Halifax to explain my client was a prison officer with 13 years’ service remaining and was in an occupational final salary pension scheme so it was impossible to accurately project forward to provide the information required. He also intends to sell the property on retirement and downsize. All this was information already provided to Halifax.

By the silence at the other end of the line I thought I must have lapsed into Polish or that “one of the friendly members of staff” Halifax’s recorded message drones on about wasn’t available that day. Only by coaxing the recipient of my call further did I realise I might as well have been discussing splitting the atom, such was the level of their understanding of what a final salary pension scheme is.

Halifax wouldn’t budge and it was only after speaking to my area representative about the problem that I realised how ridiculous this stance is. I was flabbergasted and want to share this with as many people as possible to try and shame Halifax into doing something.

Halifax assumes the pension payable at retirement is whatever it is at current rates, regardless of the type of pension scheme and number of working years remaining before retirement. It also assumes that the mortgage is interest only even if, in the case of my client, it was submitted on a repayment basis and the debt at retirement will be the same as at inception.

In my client’s case the debt would have potentially reduced by 36,000 (taken from Halifax’s amortisation table on the KFI) by the time retirement occurred but the calculation used expected him to service the full mortgage based on a pension at today’s rates regardless of the fact that he’s got a further 13 years of service. It won’t surprise you to learn it didn’t fit.

Mortgages into retirement are a hot potato for the FSA and lenders too, which is why a common sense approach is needed. Halifax, your criteria are unrealistic and unworkable. If you won’t change them at least give your staff a basic understanding of how pensions work and why your criteria is as it is.Splitting the atom might be beyond you, but training your staff?