Coventry Building Society has become the latest lender to tighten its lending criteria for borrowers who are approaching retirement. Starting from next week, the society will lend substantially smaller income multiples, on a sliding scale – depending on age at application – to borrowers who are aged 56 and over.
For example, borrowers who have 16 to 19 years before they turn 70 – the maximum age Coventry will lend to, or 75 if they can show adequate retirement income – will be able to borrow only 3.4 times their income if they earn more than £40,001, compared with four times income for borrowers aged 55 and under.
This drops to 2.2 times income for borrowers with six to 10 years until they turn 70, falling to just 1.2 times income when a borrower has one to five years to the lender’s maximum age.
“As you near normal retirement age, Coventry is going to start pegging back the amount you can borrow,” said David Hollingworth of London & Country.
Most lenders have a similar policy. The big lenders – including Santander, Halifax and NatWest – use affordability calculators that factor in the term of the loan and their maximum lending age.
“The shorter the term, the less they can borrow for a given income position,” said Nigel Bedford of Largemortgageloans.com.
Mortgage brokers said lenders were reacting to draft proposals by the Financial Services Authority (FSA) in its Mortgage Market Review to restrict lending beyond current normal retirement age.
The FSA said that when a borrower plans to work beyond normal retirement age, lenders should decide whether this is “plausible” and “realistic”.
Ray Boulger of John Charcol said the FSA’s proposals completely ignored recent legislative changes that abolished the statutory retirement age, with restrictions on employers’ ability to make retirement compulsory, as well as extending the age at which the state pension can be drawn. All these are likely to significantly extend the trend for many more people to work beyond the current normal retirement age.
“We have had several cases where an eminently affordable mortgage is deemed unaffordable by a lender using these new rules. In some cases this has resulted in people deciding not to move home because they expected to be able to port their existing mortgage,” said Boulger.
Regional building societies are often a better option for older borrowers, brokers say. Leeds Building Society and Darlington Building Society lend to borrowers aged up to 85.