This is the result of stricter rules on lending introduced by the regulator under the Mortgage Market Review. It has made it harder for borrowers over the age of 50 to get a mortgage despite having regular incomes and impressive credit records; meaning they will have no problem sustaining their repayments whilst transitioning into retirement.
The Mortgage Market Review was originally set up in order to prevent a situation where home borrowers take on more debt than they can manage. Furthermore, it is seen as a way to expunge from the market the dynamic whereby interest-only loans could be acquired without any practical repayment process being designed and executed.
The Financial Conduct Authority have made it clear that they want to safeguard against these issues and thus lenders are forced to “stress test” home borrowers to ensure that they would not struggle to meet larger repayments if interest rates were to rise. As a result, a number of lenders have cut the highest age a person can be for when their loan finishes.
The reduction has been huge considering it used to be around 85 and now is about 70-75. In fact, up to its cancellation in 2013, Halifax offered a loan specific to the elderly, one that could be settled on death. It was called the “retirement home plan” and allowed applicants to borrow money when they were nearing or even in their retirement years.
There are additional factors that affect the likelihood of an elderly person acquiring a home loan. Lenders are said to be hyper-paranoid about the possibility of people coming to them arguing they were mis-sold loans and thus the possibility of having to evict helpless retired individuals. The executive director of the Intermediary Mortgage Lenders Associations stated: “No lender wants to be seen to be repossessing elderly people’s homes. It would be a public relations disaster.”
Furthermore, there is the issue of correctly forecasting retirement income. In order for home loans for the elderly to be offered this is a fundamental variable to predict and now lenders are not trusting the figures given by pension companies. Instead, a number of them are turning to independent actuaries to do the calculations which has proven to be a drawn out and complicated process. This has caused more hassle for the borrowers in terms of acquiring the loan and the property thus deterring elderly people from applying in the first place.