Working in the property sector for over twenty years, I’ve sold over a thousand properties with the majority taking out mortgages and having numerous mortgages myself thereby my knowledge of products and working with lenders is higher than most. So when my parents explained their Interest only mortgage is coming to the end of the term, I happily agreed to assist them.
I thought it would be a simply straight forward process with my parents having never missed a payment and under 50% loan to value on their home. However, this has been a far cry from the reality.
My parents took out a mortgage with Halifax, a ten year interest only mortgage and at the time in 2007 at 65 years of age, the mortgage lender accepted the eventual sale of the property as the method for repayment for the mortgage and also accepted no repayment vehicle alongside this product when the mortgage was taken out.
After numerous phone calls, over a period of weeks and numerous different people, they conducted an income and expenditure process to demonstrate affordability. The affordability test showed they were in a small deficit and recommended to contact a debt helpline. However, in the real world you do not have exactly the same outgoings month after month and my parents are old school ‘live within your means’ and don’t spend what they don’t have. It works. They have never been financially in trouble or arrears over the past sixty years.
The Halifax ascertained they could not afford a repayment mortgage or part repayment. The Halifax could offer a ten year extension to the loan if that was the case. However, due to affordability the maximum interest only term, they would be prepared to offer is five years.
Older borrowers want one thing, security and certainty. They don’t want threats or stress and don’t have the income to repay being trapped in an option less tunnel. The mortgage lender agreed to lend the money to my parents (with next to zero diligence) and being of retirement age, the prospect of earning potential to repay this interest only mortgage was also very limited. On that basis, the lender agreed to the mortgage.
My parents wanted fixed repayments but could not have a five year fix rate because apparently these are five years and a couple of months. Despite another four months left on the current loan, the Halifax would not grant the five year extension from when this loan ends, it would have to take effect immediately and in turn were not allowed to have a five year fix rate.
It’s clear, this is deliberate. I understand why, the lender would not want to grant a five year mortgage with a customer benefitting from the attractive lower concessionary five year fix rate and miss out on the larger profits made when the customer moves to a standard variable rate.
However, this is not about having the lower rate, this is about having security in tenure with fixed repayments for the duration. The ‘recommendation’ was a two year fix rate. My Parents do not want to go through this whole process in a year and half time and with Brexit coming and the possibility of higher interest rates, they want their mortgage payments fixed for the five year duration.
Having established they are financially vulnerable, an increase in interest rates could mean for them not being able to repay the mortgage. The ‘recommendation’ suggests there is a choice. There is no choice, this is the only option being offered. This means if rates increase and they can no longer afford the mortgage, the lender would not be responsible because we are advised it is only a ‘recommendation’. The representatives can’t keep saying ‘My recommendation is’… when there is no alternative. This is the only option on offer. This is not sympathetic to their circumstances, nor constructive if they are not listening to the reasons.
The lender is not taking into account the borrower’s age, circumstances and uncertainty ahead in the markets with Brexit. I don’t think it’s unreasonable for an elderly borrower to want certainly in their home.
The Financial Ombudsman Service has told mortgage lenders in at least two cases to extend interest-only terms indefinitely for older borrowers. The FOS published a number of case studies involving complaints made by older borrowers.
The alternative is forcing a borrower to sell their home. I think it’s unfair, a lender saying, they are now too old and force a borrower to sell their home based on the previous known lending decisions based on known circumstances. As long as the monthly payments are met, a lender should extend the term of the interest-only mortgage indefinitely, so the capital can be repaid, as agreed, from the outset, when the property is eventually sold.
Lending into retirement has become one of the biggest issues in the mortgage market since the MMR. Before the rules were rolled out in April 2014, many lenders cut their maximum age limits to 70 or 75, making it more difficult for borrowers to obtain finance if the loan extended into retirement. More rigorous affordability assessments and a clampdown on interest-only lending has further restricted options for older customers.
The FCA recently called for lenders to develop more flexible mortgage products for older borrowers. However it’s clear, the strict, inflexible policy surrounding older borrowers has not changed, taking into account age, circumstances and future risk for the borrower.
My parents, now identified as financially vulnerable by the Halifax, would really benefit from the attractive five year fixed term and lower repayments, that they are not allowed to have. However, more important to them, is having fixed repayments over the course of the turbulent times ahead and certainly they can remain in their home.
The whole process is not pleasant. They do not fit into the Halifax policy and now having to go through their complaints procedure. Fortunately, my parents have me but I feel sorry for all the other oldies having to go through this, who are less fortunate, on their own and unsecure.