Age of uncertainty - and why court has ruled for common sense
AT LAST, independent financial advisers can offer those of a certain age some official hope that there is a mortgage life beyond the age of 65!
One of the consequences of the Financial Conduct Authority's Mortgage Market Review (MMR) introduced in April 2014 was that many lenders reduced the age at which a mortgage could be held – despite the fact that the MMR stated nothing about age limits.
It was seen as a sensible part of the tougher lending criteria in the wake of the banking crisis of 2008; instead, this “age-concern” policy created mortgage prisoners, unable to get a new loan, even to downsize.
Borrowers in their forties and early fifties found themselves unable to re-mortgage, despite perfect credit records, the required salary and substantial pension pots – simply because a 25-year loan would take them into retirement and beyond the age limits of the lender.
It made little sense; but common sense was of little use as applicants and their advisers attempted to find a way through this seemingly impenetrable age barrier.
One reason that lenders were able to “penalise” applicants in this way is that the Equality Act of 2010 gave an exemption to financial services providers with regards to age in making decisions.
IFAs were able to help, pointing borrowers in the direction of lenders, usually mutual building societies that were not so restrictive as far as age was concerned. The downside of a new deal could be fees or early repayment charges (ERC).
With “affordability” as the new mortgage watchword, it was only a matter of time before lenders found themselves under pressure from savvy applicants who could prove they were being denied loans purely on the grounds of their age.
Last year the HSBC bank was reprimanded for age discrimination (and fined) after informing a couple in their forties they were too old to get a mortgage.
Now the Ombudsman has ordered the Co-op Bank to pay one of its customers £2,000 for similar discrimination.
What makes this case of Peter Day all the more revealing is that he has worked in banking through his career, even including the Co-op. In the 1990s, Day was Nationwide's head of banking and savings.
Mr Day had requested a mortgage extension of five years so his lower monthly repayments would help him pay for his daughter's wedding. Because this new loan would have taken him to the age of 68, just over the Co-op's stated limit, his application was refused.
Day was “appalled” and quickly found another lender, a switch that incurred a fee of £1,389. That emphasised anther hazard for the mortgage “prisoner” – if your current lender denies you a new mortgage, there could be addition costs in finding another loan elsewhere.
Peter Day was not content to let the matter end there. He took his case to the Financial Ombudsman, who found in his favour, ruling “The Co-op hasn't shown me it did act fairly or within the terms of the Equality Act. My overall conclusion is that the Co-op did not treat Mr Day fairly.”
The main point was that Mr Day has been rejected purely on grounds of age. “The bank had every opportunity to assess my affordability,” added Day. “They had not taken into account that I was a good existing customer.”
Although Day had no plans to retire, if he did there was the security of three final-salary pensions. In addition to his current mortgage with the Co-op, Day also had a savings account and a current account with the bank. It was clear that Day had been rejected solely because of his age.
The decision by the Ombudsman has encouraged the Co-op to extend their mortgage age limit by seven years, to 75.
Paul Green, director at over-50s specialists Saga, added: “It should not take the financial ombudsman to make bankers see sense. If banks got to know their customers as individuals, rather than just numbers of a spreadsheet, they would understand how out of touch they are with modern Britain.
“The ruling is a victory for common sense.”
The Co-op defended their stance on a number of fronts, claiming that it was “not obliged to lend, and this is a commercial decision we are entitled to make” – which basically meant “we can do what we want and do not need to explain ourselves.”
The ombudsman was quick to respond to that line. “This wasn't a decision whether or not to lend to a new customer. This was a decision about how it treated an existing customer – and, in doing so, it should have acted fairly.”
Last November the Building Societies Association (BSA) published a report on lending in retirement. Its conclusions prompted all 44 mutual building societies to pledge to review their age limits. Some mutual have already raised or scrapped those limits.
No-one is suggesting that lenders should burden customers with loans that impact on their financial well-being in their retirement years. For most people, the home is their major asset. Soaring house prices have left many with substantial equity in that property.
There are many reasons why these owners would like to utilise some of that cash (especially with mortgage rates at record lows) – assisting children and grandchildren onto the property ladder or simply enjoying some of the finer things of life, like an exotic holiday.
If borrowers are able to pass the “affordability” test and satisfy the lender's financial requirements, age should not be the determining factor. Borrowers and IFAs have long thought so – now lenders are beginning to get that message.
:: Darren McKeever (dmckeever@ wwfp.net) is Northern Ireland adviser of Worldwide Financial Planning, which is authorised and regulated by the Financial Services Authority. For a free, no obligation initial chat about your individual finances, call 028 68632692, e-mail info@ wwfp.net or click on www. wwfp.net. Follow us on Twitter: @WorldwideFP.