By Neil Patrick
Daily Mail 25 Nov 2014: “Over 40? Then you CAN'T have a mortgage: Banks are now rejecting borrowers who would still be paying off loan in retirement”.
This headline caught my eye today. And as is often the case with the Daily Mail, it’s a thinly disguised attempt at sensationalism. Nonetheless, I think it is very significant news, but not because of the implied injustices it alleges.
The essence of the "story" is that new research found that people aged over 40 seeking a standard 25-year mortgage are finding their options restricted because (assuming their mortgage runs its full term - which they rarely do) they will be borrowing beyond the “normal” retirement age of 65.
The new Mortgage Market Review (MMR) rules, which came into force in April, mean that lenders have to spend more time considering whether home buyers can afford the mortgages they are applying for. - not a bad thing at all in my view.
The report released yesterday by the Intermediary Mortgage Lenders Association (IMLA) stated that "interpretations" of the MMR have convinced many banks that lending into retirement now carries extra risk if borrowers go on to find that their retirement income is less than expected.
Mortgage lenders have typically applied an upper age limit of 65 for decades now. So this point isn't really anything new.
I think the real story here isn’t about mortgages and whether or not we get accepted or rejected for one when we apply. The simple facts are that lending is and always has been priced according to lenders’ rules around risk assessment. Basically, the higher the perceived risk, the higher the cost of the loan.
But if one lender rejects your application, there will almost always be others that will accept it, albeit at a higher price and/or on different terms.
Banks and lenders get a hard time from the media. Often, it is justified. Sometimes it’s not. In this case, they are damned if they do and damned if they don’t. If they were not making stricter assessments, they’d be criticised for encouraging over-indebtedness. By applying tougher rules, they are criticised for making mortgages less easily available to some people.
So as far as the new assessment rules are concerned, it’s really not a story.
No, the real story is far behind the headlines.
What is significant I think is what this news reveals about how banks currently view the financial prospects for people aged over 40 in the UK.
Looked at in this way, this news is a bombshell.
Forget the MMR rules, this news tells us that as far as the banks are concerned, the income prospects of people over 40 are very weak. Make no mistake, if a bank is happy that you can afford to repay a mortgage or other loan, they’ll be happy to lend you the money (and of course take the interest too).
So the MMR gripes are a smokescreen. And this isn’t a new form of age discrimination.
But it is a very troubling indication, that those whose business it is to understand the outlook for our incomes have decided that despite rising house prices, the outlook for most peoples' incomes remain very fragile indeed.
I think the real story here isn’t about mortgages and whether or not we get accepted or rejected for one when we apply. The simple facts are that lending is and always has been priced according to lenders’ rules around risk assessment. Basically, the higher the perceived risk, the higher the cost of the loan.
But if one lender rejects your application, there will almost always be others that will accept it, albeit at a higher price and/or on different terms.
Banks and lenders get a hard time from the media. Often, it is justified. Sometimes it’s not. In this case, they are damned if they do and damned if they don’t. If they were not making stricter assessments, they’d be criticised for encouraging over-indebtedness. By applying tougher rules, they are criticised for making mortgages less easily available to some people.
So as far as the new assessment rules are concerned, it’s really not a story.
No, the real story is far behind the headlines.
What is significant I think is what this news reveals about how banks currently view the financial prospects for people aged over 40 in the UK.
Looked at in this way, this news is a bombshell.
Forget the MMR rules, this news tells us that as far as the banks are concerned, the income prospects of people over 40 are very weak. Make no mistake, if a bank is happy that you can afford to repay a mortgage or other loan, they’ll be happy to lend you the money (and of course take the interest too).
So the MMR gripes are a smokescreen. And this isn’t a new form of age discrimination.
But it is a very troubling indication, that those whose business it is to understand the outlook for our incomes have decided that despite rising house prices, the outlook for most peoples' incomes remain very fragile indeed.
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