During a session in the House of Lords this week, the deputy chief whip, Lord Dick Newby, called for the FCA to focus on UK mortgage lenders approach towards older borrowers. The Liberal Democrat peer said that lenders are not approaching the regulators Mortgage Market Review guidelines in the “spirit” of fairness, and have instead decided to make the process for older borrowers looking to raise funds an uphill struggle.
Newby noted that, “Many lenders appear to be approaching the rules in a way that is against the spirit set out by the FCA. The FCA is reviewing the way the MMR rules operate, and I hope there will be some movement there.”
Lenders have changed policy across the board since the implementation of the MMR process in April, and most will require confirmation of retirement income, if a mortgage term exceeds the notional retirement age of 67 years, that the majority of lenders apply for mortgage assessment.
Although the prescribed historic age of 65 years has recently been removed, lenders have chosen to maintain a more simplistic view, seemingly in an attempt to head-off perceived riskier lending to older individuals. The concern for many industry insiders is that these rules, coupled with the imminent changes to pension freedom, which the Government have proposed for 2015, will prevent many genuinely suitable borrowers from securing funding.
While Newby’s point focuses solely on lending for older borrowers, the impact of a change in regulation has also ushered in a much tighter focus in all areas of lending criteria. Over the past month, lenders have taken to making vast interest rate reductions in an attempt to meet annual lending targets. But many brokers feel that this is the simplest route for lenders to take, when a focus on relaxing criteria could aid an increase in market activity.
Taj Kang, a director for Contractor Mortgage Made Easy, said: “The majority of lenders in the market began to implement more restrictive updates to criteria several months before the FCA pushed through the MMR mandate. As an example of the way in which lenders chose to approach the required changes, this saw a negative attitude towards the interest only repayment process for residential lending introduced, without any thought given to restricting this type of lending to upwardly mobile individuals.
“This blanket, almost near-jerk approach to assessment is just one of the issues with the way that lenders try to stay onside with the regulator.”
Kang called for a more progressive attitude to lending, in order for the market to continue making the strides seen earlier in the year that helped to improve economic activity in the UK. He said: “Lowering interest rates will naturally encourage interest in the market, and brokers and borrowers alike will always welcome this. But the fact that lenders still continue to concentrate on offering loans to the same type of borrowers creates stagnation, and continues to push perceived riskier borrowers, such as the self-employed and contractors, to the margins.
“The belief that people working in this way are a riskier proposition needs to change, as there is no quantifiable evidence that proves permanent employees present less risk than a self-employed individual. Many lenders are comfortable with this notion, but with an ever-growing contractor market in the capital, perhaps it is time that all lenders consider just how beneficial a change in perception towards these groups could be for all, especially as many choose to employ staff on this basis.”
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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