Age Discrimination Mortgage Ruling

Age Discrimination Mortgage Ruling.

Earlier this month the Financial Ombudsman Service (FOS) ruled against HSBC bank in the case of a mortgage application for a couple that would be over the age of 65 when a £250,000 interest only mortgage would be due to be repaid.

Age Old Question

The FOS suggested that HSBC had declined the mortgage application solely on the basis of age and have not conducted the usual suitability and affordability checks as is usual for most mortgage applications. Whilst we are not party to the ruling it has been written that HSBC consistently rejected the application on age only and hence the complaint by the applicants to the FOS. The FOS has ordered that HSBC pay £500 in compensation and to review the application using its usual underwriting criteria.

The impact of this ruling is far-reaching both in terms of general mortgage applications as well as equity release schemes and we suggest the financial services industry should work with the regulator (the financial conduct authority) to establish good practice guidance.

Inconsistent Message

Consecutive regulators have issued inconsistent messages such as interest only mortgages being frowned upon and mortgages into retirement being frowned upon yet the FOS has ruled against HSBC on this occasion.

Banks are faced with the dilemma of responsible lending as well as ensuring suitability and affordability not just today but also following stress test affordability markers such as significant interest rate rises, falling or rising income in the future and future living expenses.

Will this change the future of mortgages?

We suggest the above ruling will change the mortgage lending market in the future as lenders will have to give greater consideration and availability for mortgages where people are moving into later life although the basic requirement of affordability if you do not have significant pension schemes or other income or assets in retirement may still keep the volume of lending lower. Additional repercussions could be the aspect of care with elderly people being pressured into borrowing equity from their property to fund care even if the property cannot be means tested because a vulnerable person e.g. a pensioner or a child may still be living in the property.

Good practice should always remain focused on suitability and affordability but we suspect pressure will be applied to mortgage lending groups to ensure that age discrimination is never a factor. Expect the at retirement and after retirement equity release and mortgage market in general to develop further products to accommodate the above ruling. That said, we wonder who will be blamed when a pensioner cannot afford to meet loan repayments and a lender moves to repossess the property. These are headlines that the financial services industry could well do without.