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Leeds’ tightened retirement criteria simply decreases consumer choice

I was interested to read Mortgage Strategy’s story last week on the news that Leeds Building Society has tightened its criteria when lending into retirement by reducing the maximum age a borrower can be at the end of their term from 80 to 75.

The lender’s mainstream mortgage range insists borrowers are no more than 75 years old when their term comes to an end.

A spokesman from Leeds Building Society was quoted as stating that: “We are constantly reviewing our mortgage range to ensure that it is appropriate for the market.”

But I guess this depends on how you define “the market”.

If the word market is defined in the normal way, i.e. potential consumers of a product or service, this criteria amendment does the exact opposite of ensuring the mortgage range is appropriate for the market as it reduces consumer choice, despite there being no reduction in the availability of suitable advice.

Therefore I assume either Leeds is getting too high a proportion of its business from mortgages where the borrower’s age at maturity is over 75, because of the small number of players in the sector of the market, or the word “market” is a euphemism for concerns about regulation.

With this criteria change Leeds has merely come into line with most other lenders by removing one of its unique sellings points.

However this move is further evidence of a conflict between what the Mortgage Market Review says, i.e. that lending into retirement, however one defines that these days, IS acceptable, providing affordability can be adequately demonstrated.

That contrasts greatly with the criteria the vast majority of mainstream lenders are actually currently applying to this sector of the market.

Fortunately innovative products like Hodge Lifetime’s new retirement mortgage are helping to fill the gap left by mainstream lenders in meeting the affordable needs of older borrowers.

But it is notable that while pressing ahead with a second scheme to help the important first-time buyer sector, and others only able to put down a small deposit, on the basis there is market failure in the 95 per cent LTV market sector, the Chancellor George Osborne appears not to have noticed there is even greater market failure in the market for older borrowers.

It appears to have also escaped his notice that the “market failure” as far as high LTV lending is concerned is primarily due to the Basel 3 rules, which he supported.

Does that mean that to address the “market failure” resulting from Basel 3 the Chancellor would now support changes in Basle 3 to make its capital requirements for high LTV lending less restrictive?

Ray Boulger

Senior technical manager

John Charcol


The hereditary mortgage is not as ideal as it seems

There was an interesting blog from Harry Lofthouse on Mortgage Strategy Online last week about whether now was the right time for hereditary mortgages to be introduced.

As he stated, the The concept of giving debt directly to your children would no doubt horrify and repel many.

But there is a good reason why hereditary mortgages might be seen as attractive – housing is more expensive which results in ever older first-time buyers and the ability to pay back a mortgage over a longer term makes them more affordable.

As he said: “One of the major benefits of hereditary mortgages is that it may also help younger people onto the property ladder sooner as the mortgage repayments are lower over an extended term as the debt burden will have been split between them and their parents.

“For example, a £200,000 repayment mortgage at 3 per cent costs £644 per month over 50 years. By contrast over just a 25 year period, the monthly costs rises 47 per cent more to £948 per month.”

While this makes an argument for hereditary mortgages, the Elephant in the room is care costs for an aging population.

The current costs of our National debt and social services infrastructure is lurching along, and costs of long term care for the elderly quite clearly will not be sustainable if borne by Government or Local Authorities.

Spreading a debt over a longer term will make a mortgage more affordable, but if the equity is required at say age 80-85 with potential life expectancies for many nearing 90 plus, even five years of care will take a substantial swipe.

In other words, there is no warranty that the children can just simply inherit the mortgage if the property in question is not their current main residence, and who can with any degree of certainty forecast the taxation rules that will prevail in 25 years time.

Plus how could hereditary mortgages be possibly reconciled with the new long term affordability requirements of MMR? It is not a simple equation at all.

Mary Lockyer


A timely warning on life insurance for people in debt

Debt Support Trust director Stuart Carmichael made an excellent point in his recent blog on Mortgage Strategy Online about why it is vital to place a life insurance policy in trust for people in debt.

He pointed out that if a person enters an insolvency solution, their assets transfer to their insolvency practitioner. This typically means a house or car, however it can mean a windfall, bonus from work or money from a life insurance policy.

He said: “In the unlucky event when somebody dies during a debt solution and they have a life insurance policy, the insurance money is paid to the insolvency practitioner as an asset. This money is then used to repay debts and insolvency fees. If there is no money left then the family is responsible for the funeral costs.

“The alternative option is to place the life insurance policy in trust. In the unfortunate event of somebody dying whilst in a debt solution, their life insurance money would be paid to the policy Trustee, not the insolvency practitioner.”

Carmichael is to be commended for bringing this issue to the attention of financial advisers.

We operate an online forum covering Scottish personal insolvency and frequently hear from members of the public that are confused and sometimes distressed upon discovering that their life insurance is no longer providing the cover that they believed it was.

We covered many of the common issues associated with this topic in an article we published at earlier this year. Advisers might want to take a particular interest in the devastating effect that a life insurance pay-out might have in certain circumstances upon a surviving joint homeowner even where the pay out is quite legitimately used to repay the mortgage.

They also should be aware that a number of insolvency practitioners and debt advice intermediaries have joined forces with financial advisers to initiate the re-broking of life cover prior to a protected trust deed being signed. I assume the same will be the case with individual voluntary arrangements in the rest of the UK.

If you’re not putting yourself in the position to assist your clients that are facing a formal insolvency in the future, by reviewing whether their life cover will remain suitable, it is increasingly likely that someone else will step in and handle this instead.

Andrew Graveson


What’s the fuss over 95% LTV? It works for some customers

There were a number of comments from brokers last week criticising the recent statement made by the Chancellor George Osborne that the lack of 95 per cent loan to value mortgages is a “social problem” as he launched a fierce defence of the Help to Buy scheme and high loan-to-value deals.

For the youngsters in the market I would point out that 95 per cent mortgages have been available since the 1970s and were readily available with an indemnity. For a long time an indemnity was a way for the insurance inductry to get money for old rope and it was only the property price crash of the early 1990s that caused most insurers to leave the market.

It seems to me that there is an awful lot of hand wringing going on about a relatively limited problem.

Average lender arrears (for a responsible lender) are running at about 1.5 per cent of the book or in simple terms 99.5% of all borrowers are good borrowers. The issue that causes most arrears problems is unemployment but we have nowhere near the level of people out of work that we had in 1992,3 and 4.

I would happily lend 95 per cent to the right applicants, and I would also point out that credit scoring is extremely weak when it come to high LTV loans.

Don’t forget that first-time buyers are competing hard with buy-to-let investors for properties at the bottom of the market as it – why make it more difficult for them?

Grey Haired Underwriter


High LTV is fine on £150k as checks are now more thorough

With regards the Chancellor George Osborne’s recent comment that a lack of 95 per cent loan to value mortgages is a “social problem” as he launched a fierce defence of the Help to Buy scheme and high loan-to-value deals, I agree.

Expanding 95 per cent borrowing to more first-time buyers but limiting the loan amount to around £100,000 to £150,000 would be a welcome boost to first-time buyers in the majority of areas. I do not think we should go back to 95 per cent on a £400,000 flat in London for example. Underwriting especially in building societies has moved back to a more manual based where affordability is properly checked with three to six months bank statements for high LTV borrowing.

Name and address supplied



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