The one area in which a proper affordability assessment is ignored is lending to older borrowers, according to findings from The Mortgage Adviser, LEBC Group’s independent mortgage service.
This has led to calls for mortgage lenders to pay more attention to the ageing population and the fact that more people, through necessity or choice, are working way beyond the state retirement age.
The Mortgage Adviser says that most lenders are guilty of erecting an arbitrary age barrier against older would-be borrowers. This age barrier doesn't take into consideration personal circumstance, reasons for the loan or credit worthiness.
“Advancing age is not inextricably linked to a poor credit risk, in many cases the reverse may be true,” Kay Ingram, director at LEBC Group, commented.
“A younger borrower can be dismissed from their job, or suffer ill health. Skills may become outdated and earning potential may fall as well as rise.”
By contrast, an older borrower cannot be sacked from their pension scheme and, even if the scheme were to fail, current pensioners have their pensions guaranteed by the Pension Protection Fund.
“A younger member of that same scheme has less protection and can lose 10% or more of their potential pension thus straining their affordability criteria,” Ingram added. “Borrowers over state pension age have a guaranteed income which is guaranteed to increase every year by inflation or at least 2.5%. No one of working age has that guarantee.”
Older borrowers are likely to seek finance from a smaller number of equity release lenders, or borrowing at excessively high rates from finance houses, if they are refused by lenders on account of their age.
“Mainstream lenders risk losing a share of a substantial and growing segment of the market if they persist in looking no further down the application form than the applicant’s date of birth,” Ingram concluded.