A lender recently wrote to a customer to inform her that her interest only mortgage was coming to an end. The woman, a widow in her mid-80s, had taken out the mortgage a decade previously when she was 75 and her late husband was 70. They had told the lender at the time that they had no provisions in place to repay the capital at the end of the term. When she replied to the letter asking for the term to be extended the lender refused, telling her she would have to sell her house if she could not pay the balance.
Thankfully, the horrifying prospect of having to sell one’s home, aged 80 or 90, in order to pay off a mortgage is now fading thanks to the intervention of the Financial Ombudsman Service (FOS). In a landmark ruling which has set an important precedent for older borrowers, the FOS ordered the lender to extend the mortgage term ‘indefinitely’. This is one of several recent cases where the FOS has ruled in favour of an elderly borrower who would otherwise be faced with upsetting upheaval in their twilight years.
‘We pointed out to the mortgage company that they’d already agreed to lend money to Mr and Mrs R into their 80s – knowing there was no repayment vehicle in place,’ a spokesman for the FOS said. ‘In our view, Mrs R was in her current position because of their previous lending decision. We didn’t think it was fair to now simply say she was too old – and force her to sell her home.’
Many borrowers who took out interest only loans never saved enough to repay the capital, either because investments intended to pay off the mortgage didn’t perform as expected, or because of a misunderstanding about the terms of the mortgage.
One borrower, who had taken out an interest only mortgage on a 25-year term in his early 70s, complained to the FOS that he believed he had a lifetime mortgage. The FOS upheld his complaint, saying: ‘We were concerned that the mortgage company hadn’t given personalised advice – taking into account the borrower’s age and circumstances. Mr A was now facing the prospect of selling his home at nearly 100 years old – with 15 years of worry in front of him. We didn’t think this was fair.’
In another case, a man in his mid-90s was horrified to discover he was expected to repay his entire mortgage in just a few years’ time. He had mistakenly thought he could make interest payments indefinitely and when he begged his lender to reconsider it refused, saying it had been clear about the terms of the loan when he and his late wife had signed on the dotted line a decade previously.
In this instance, the FOS ruled that the lender had not properly considered the couple’s age and circumstances, and ordered it to convert the loan into a mortgage without a set end.
Lending to older borrowers is a topic that continues to attract attention in the media. Strict affordability assessments and a clampdown on interest only borrowing followed the Mortgage Market Review (MMR) of April 2014, restricting options for older borrowers who were already being squeezed by decreasing upper age limits. Over the past few years it has become much more difficult to obtain finance if the loan is going to extend into retirement.
There are signs, however, that this is changing. In the face of increasing demand, several building societies recently announced a review of their age limits. And now, in at least three cases, the FOS has told lenders to extend interest only terms for older borrowers indefinitely.
The FOS’s emphasis on ‘personalised advice’ cuts to the heart of why it so important to use a broker if your circumstances are at all complex. Have a look at The Telegraph’s feature on a recent case of ours for more information. We successfully secured a mortgage for an 88-year-old borrower after they had faced a barrage of rejections on the high street, cementing our market-leading position in this area.
These rulings have set the tone for future cases and, although they bring a burst of Christmas cheer for older borrowers, may have an impact on the way lenders approach these loans in the future. If you would like to speak to a specialist broker about your options, please do get in touch with us here at Enness.