UK Pricescopers question about mortgages -age discrimination

[Beacon]

Was reading the Financial Times and saw an article about how UK banks are "tightening their age restrictions" on the mortgages.

As best I could figure from the article, they don't want to lend to a person who would be over age 75 before the mortgage was paid off. So they openly turn away older borrowers. In some cases this age limit is as low as 65.

Which is to say the person has to have the mortgage paid off by age 65 to qualify, which means you would have to be pretty young at the start...

I thought maybe I just did not understand the article and I wondered if anyone knows if it is true?

Thanks so much for any help.

 

[mayerling]

Re: UK Pricescopers question about mortgages -age discrimina

I can't answer your question but having lived in Europe all my life, I was shocked when my US in-laws mentioned how they were getting a 30-year loan at age 65!
I think my shock stems from the fact that over here it's generally the case that you lend to people who have a good chance of paying their loan off (and life expectancy has something to do with this).

 

[Beacon]

Re: UK Pricescopers question about mortgages -age discrimina

I understand what you are saying at an intuitive level. But I don't think it means the loan is less safe just because the borrower is older or the loan term is longer.

For example, it might be much safer to lend to a 75 year old who has steady income from an investment portfolio or pension than to a 25 year old who might lose his job any moment.

Even if the loan is for 30 years, and the older person dies beforehand, well, the house is sold and the mortgage loan is repaid so the lender has little risk.

I felt really, really sorry for older people (who in my view aren't even that OLD) getting turned away from lending just because of their age.

 

[JewelFreak]

Re: UK Pricescopers question about mortgages -age discrimina

That would mean you can't get a 30-yr mortgage over the age of 45, which is a little hard to believe. From what I've read, the U.S. is one of few countries where banks offer 30 yrs, & it's not available in Europe. Don't know about the UK -- do they have them there?

Age discrimination is alive & well in many many areas. Nobody marches over that. (They'd have to get out their strollers & canes anyhow. ) Unfortunately, it's darned hard to prove usually.

--- Laurie

 

[justginger]

Re: UK Pricescopers question about mortgages -age discrimina

Australia regularly has 30 year loans, but I have never heard of someone post-retirement even entertaining the idea of an additional mortgage. Down here, short of having millions of assets, no investment portfolio would give you the income necessary to repay an average mortgage and live life (I just did the basic math - your portfolio would have to be nearly $850,000 to make an average monthly repayment here, with none of that interest going anywhere else). It would be unlikely that someone with that portfolio size wouldn't have already purchased their intended properties during their working careers, no?

I don't think it has anything to do with discrimination and everything to do with banks wanting to recoup their cash. They don't make loans to young people with limited income, and don't make loans to old people with limited income. Or am I unintentionally biased as well? I've never even considered this topic, as it seems common sense to me that loans of great magnitude are not intended for those who are unlikely to pay them off before it turns into a potentially messy estate matter.

 

[Beacon]

Re: UK Pricescopers question about mortgages -age discrimina

That would mean you can't get a 30-yr mortgage over the age of 45, which is a little hard to believe. From what I've read, the U.S. is one of few countries where banks offer 30 yrs, & it's not available in Europe. Don't know about the UK -- do they have them there?

Age discrimination is alive & well in many many areas. Nobody marches over that. (They'd have to get out their strollers & canes anyhow. ) Unfortunately, it's darned hard to prove usually.

--- Laurie

Yeah, me too! Very hard to believe but I think it's true. For that 45 year old borrower might have to take a 25 year loan max, which means they would have higher payments due to the shorter term, making them less competitive than a buyer 5 years their junior.

It's rough!!

The USA is one of the few countries where you can get a 30 year fixed rate loan. You can get 30 year loans in Europe, but they will be adjustable rate loans.

 

[Beacon]

Re: UK Pricescopers question about mortgages -age discrimina

Here's the Financial Times article. I hope it's ok to post the link:

http://www.ft.com/intl/cms/s/0/2006909a-1578-11e3-950a-00144feabdc0.html?siteedition=intl&siteedition=intl#axzz2hMEtM5VL

It would be point blank illegal to do this in the USA.

 

[HollyDolly]

Re: UK Pricescopers question about mortgages -age discrimina

We do have 30 year mortgages here in the uk, our original mortgage was for 37 years!

As far as I'm aware that age rule has been in place for a long time, I certainly remember an exs parents only being able to take out a 12 year mortgage, which took them up to retirement age.

I don't think it's discriminatory, it's sensible from a risk perspective.

 

[rosetta]

Re: UK Pricescopers question about mortgages -age discrimina

We do have 30 year mortgages here in the uk, our original mortgage was for 37 years!

As far as I'm aware that age rule has been in place for a long time, I certainly remember an exs parents only being able to take out a 12 year mortgage, which took them up to retirement age.

I don't think it's discriminatory, it's sensible from a risk perspective.

I agree that it's sensible. Irresponsible lending was the reason we ended up in financial crisis in the first place!

 

[Jennifer W]

Re: UK Pricescopers question about mortgages -age discrimina

I understand what you are saying at an intuitive level. But I don't think it means the loan is less safe just because the borrower is older or the loan term is longer.

For example, it might be much safer to lend to a 75 year old who has steady income from an investment portfolio or pension than to a 25 year old who might lose his job any moment.

Even if the loan is for 30 years, and the older person dies beforehand, well, the house is sold and the mortgage loan is repaid so the lender has little risk.

I felt really, really sorry for older people (who in my view aren't even that OLD) getting turned away from lending just because of their age.

I can't seem to open the FT article, so I'm commenting without reading the piece - apologies if I misunderstand something basic. It isn't as cut and dried as an age limit, though. To get a mortgage in the UK, which is generally for a term of 20 years, although other terms are possible, you have to demonstrate that you are likely to have enough income throughout that term to repay your borrowing. This could, as you point out, be easier to do if you have a secure pension rather than an insecure job. Lenders will weigh up that those risks in making a decision in each case. The 25 year old might find it hard to get a mortgage (or standard security as it is in Scotland, with some small differences) if she couldn't demonstrate realistically that the loan can be repaid.

The scenario you mention where the older person dies before the term of the loan ends is actually precisely one of the reasons why many lenders are hugely reluctant to give mortgages to older people. If a non-entitled spouse or partner lives in a marital home or equivalent (ie without their name on the Title itself, which for various reasons, is fairly common here) under certain circumstances they acquire statutory rights over the property, principally a right to reside there. That right would in some cases effectively prevent the bank from selling the home of someone who died during the term of their mortgage, but whose spouse or partner did not. The spouse or partner wouldn't own the house, but they'd have a right to live in it, meaning the bank could not offer it for sale with vacant possession. Unlikely they'd find a buyer who would be willing to share with the deceased former owner's husband / wife / partner. A spouse or partner could acquire rights like this after the mortgage was granted too, so the decision wouldn't made for example on the basis that the borrower was single at them time - that could change, the rights could be acquired and they are pretty robust statutory rights. (Eta If both parties were signatories to the loan and are both named on the Title, there's much less of a problem although banks here hate the PR associated with repossession of an older person's home, so they are very conservative even then.)

Again, that doesn't always result in a blanket ban on lending to older people, but it would mean that there would have to be an alternative means of the bank securing their capital, for example an insurance policy with the bank as a beneficiary. Not so many insurers are willing to underwrite that risk after a certain age, so in effect, that's not often an option either.

So, while it isn't as straightforward as a ban on lending, these are some of the practical reasons why it is very difficult to get a mortgage or standard security that will run significantly past your retirement age.

ETA here's a link to some info about the law on age discrimination here. It is now part of the Equality Act, which offers a fairly high degree of protection from discrimination, although it isn't perfect.
https://www.gov.uk/equality-act-2010-guidance
http://www.legislation.gov.uk/ukpga/2010/15/contents

 

[Beacon]

Re: UK Pricescopers question about mortgages -age discrimina

I understand what you are saying at an intuitive level. But I don't think it means the loan is less safe just because the borrower is older or the loan term is longer.

For example, it might be much safer to lend to a 75 year old who has steady income from an investment portfolio or pension than to a 25 year old who might lose his job any moment.

Even if the loan is for 30 years, and the older person dies beforehand, well, the house is sold and the mortgage loan is repaid so the lender has little risk.

I felt really, really sorry for older people (who in my view aren't even that OLD) getting turned away from lending just because of their age.

I can't seem to open the FT article, so I'm commenting without reading the piece - apologies if I misunderstand something basic. It isn't as cut and dried as an age limit, though. To get a mortgage in the UK, which is generally for a term of 20 years, although other terms are possible, you have to demonstrate that you are likely to have enough income throughout that term to repay your borrowing. This could, as you point out, be easier to do if you have a secure pension rather than an insecure job. Lenders will weigh up that those risks in making a decision in each case. The 25 year old might find it hard to get a mortgage (or standard security as it is in Scotland, with some small differences) if she couldn't demonstrate realistically that the loan can be repaid.

The scenario you mention where the older person dies before the term of the loan ends is actually precisely one of the reasons why many lenders are hugely reluctant to give mortgages to older people. If a non-entitled spouse or partner lives in a marital home or equivalent (ie without their name on the Title itself, which for various reasons, is fairly common here) under certain circumstances they acquire statutory rights over the property, principally a right to reside there. That right would in some cases effectively prevent the bank from selling the home of someone who died during the term of their mortgage, but whose spouse or partner did not. The spouse or partner wouldn't own the house, but they'd have a right to live in it, meaning the bank could not offer it for sale with vacant possession. Unlikely they'd find a buyer who would be willing to share with the deceased former owner's husband / wife / partner. A spouse or partner could acquire rights like this after the mortgage was granted too, so the decision wouldn't made for example on the basis that the borrower was single at them time - that could change, the rights could be acquired and they are pretty robust statutory rights. (Eta If both parties were signatories to the loan and are both named on the Title, there's much less of a problem although banks here hate the PR associated with repossession of an older person's home, so they are very conservative even then.)

Again, that doesn't always result in a blanket ban on lending to older people, but it would mean that there would have to be an alternative means of the bank securing their capital, for example an insurance policy with the bank as a beneficiary. Not so many insurers are willing to underwrite that risk after a certain age, so in effect, that's not often an option either.

So, while it isn't as straightforward as a ban on lending, these are some of the practical reasons why it is very difficult to get a mortgage or standard security that will run significantly past your retirement age.

ETA here's a link to some info about the law on age discrimination here. It is now part of the Equality Act, which offers a fairly high degree of protection from discrimination, although it isn't perfect.
https://www.gov.uk/equality-act-2010-guidance
http://www.legislation.gov.uk/ukpga/2010/15/contents

Thank you for this very intelligent explanation of the circumstances in the UK. That explains why the banks would not want to lend to people as they get older. It's certainly a shame about that. The "rights" mentioned are a pretty nice example of good intentions creating poor consequences. In the US there are people who might obtain "rights" to a house after a mortgage was granted, like someone who marries someone who owns a house. Those rights would not prevent a lender from foreclosing on the house if the payments were not made though. So the best bet for the home owners (however defined) would to continue to make the payments in the event of death of the mortgagee or to sell the property. Depending how the will of the deceased was written, sale might be required in any case in order to distribute the assets to the heirs.

In the US, even older people have the same mortgage ability as younger people. Sounds like in the UK, if you miss the homebuying boat while young, you would find it increasingly difficult as you get older to ever acquire one.

Thank you for your thoughtful post - very illuminating.

 

[Jennifer W]

Re: UK Pricescopers question about mortgages -age discrimina

You're welcome! I'm glad it came over as helpful,( eta I hesitated to post, because it read a little bit lecturey.. ). The rights of a non-entitled spouse are statutory now, but they go waaaaay back. In terms of social policy, I've always viewed it as a very positive thing. It is intended to offer basic protection of a family home, for example so that one spouse can't decide to leave and sell the house from under the other spouse and children (who may have little or no income in their own right) to fund a new life style. It's about more than protection from repossession by a bank, and it's a fairly fundamental aspect of the interacting between family and property law rights in Scots law. The rights don't entirely defeat the right of a creditor to sell, it isn't straightforward, but they do make it very difficult (and almost impossible in some cases).

More abstractly, and in terms of culture, I think perhaps buying a house isn't perhaps as ingrained here, at least in Scotland. Many, many people rent their homes (and some tenancies can be passed down to an heir too, so it can be a very secure form of tenure in the UK). Some (although sadly not all) social rented housing is first class, and built to a significantly higher standard that much of the private sector equivalent. Housing associations, particularly in Scotland, account for a significant chunk of the overall housing provision. So, while there are a lot of owner-occupiers, it's not the be all and end all. Until my generation, it was the exception rather than the norm for most people to own your house. Plenty people do, but it doesn't seem quite so important here as it seems to be in the US (I don't know - I'm basing that on what I know of friends and family members in America, and what I read here, so I could be wrong, but it seems more of an expectation / more important than it is here). I think that's starting to shift though, so maybe our lenders will look again at how they approach loans. I get a feeling that they are scared at the moment though, and more risk averse than they have been in a very long time.

Also, and again speaking very generally, houses just don't cost so much here. There are exceptions - London, Edinburgh, Aberdeen and parts of the Home Counties are awesomely expensive, but in more modest areas, a 20 year mortgage is what is most commonly required, or less. Mine was a ten year term. First time buyers here are traditionally young, that's nothing odd to us.

 

[Beacon]

Re: UK Pricescopers question about mortgages -age discrimina

Not "lectury" at all Jennifer! I love people who have data to share to explain things.

Yup, owning a home has long been the "American Dream" and most policy makers in America think that home ownership provides long term stability to neighborhoods, inspires people to continually improve and care for their homes, creates a nest egg for retirement, etc.

I think in Europe some property rights ideas go so far back, into feudal times perhaps, where tenancy was common and maybe there were injustices that policy makers sought to address by impairing owners rights to property in some cases.

Certainly a complex problem when it comes to culture and history affecting the long run bias of policy makers.

In the US if you decided that people over a certain age should be denied mortgage lending on the same terms as any other applicant, it would exactly like deciding any other minority group should be denied those rights. It is absolutely illegal here.

Your explanation showed that it is not the borrower who presents the risk, but the property itself, since the rights of persons unknown to the lender may impair their credit risk against the house.

 

[Jennifer W]

Re: UK Pricescopers question about mortgages -age discrimina

Feudal tenure was abolished in Scotland in 2003! Which is fairly recent!

Annoyingly, that was the year I took my property law credits at law school, which meant I had to learn (and sit their fiendish exams which covered) both systems. Feudalism is complicated, is pretty much most of what I can recall, to be honest.

I think a blanket ban on lending to people over a certain age would fall foul of the law here too, but lenders aren't quite saying that, so they are managing to balance risk with equality very much in their favour, as far as I can see. I'm not an expert in either equality law or finance, by any stretch, so I'm not entirely certain as to how that's working in practice, but the Equality Act does cover provision of goods and services, so I don't think it's just hey, you're over x age, we won't consider you for a mortgage...

It's not easy for anyone to get a mortgage here right now, from what I've seen. The days of 90 % or even 100% loans are gone, and you need a generous chunk of the capital as a deposit now, I think. The effect of this could well be to push the age of first time buying up, so maybe things are going to have to change here? Time will tell, I suppose.

 

[Stephny691]

Re: UK Pricescopers question about mortgages -age discrimina

I don't think all types of mortgages are affected by this, my FSFIL just got a buy-to-let mortgage and he's 53, so will be at least 73 by the time it's paid. So maybe this applies to buy-to-live-in mortgages only?

 

[Beacon]

Re: UK Pricescopers question about mortgages -age discrimina

From the Financial Times article, I gathered that few lenders are willing to have a mortgage last beyond age 75, so a 53 year old could have a 20 year mortgage, as I understood it. Seems they could not have a 25 or 30 year mortgage without considerable difficulty. But a younger person would be allowed a 30 year term mortgage.

 

[Stephny691]

Re: UK Pricescopers question about mortgages -age discrimina

I'm fairly certain he got a 25 year mortgage, which is why I was wondering if it's only certain types of mortgage that are affected.

 

[Lady_Disdain]

Re: UK Pricescopers question about mortgages -age discrimina

I don't think it is as simple as saying "it is age discrimination". Risk management is a huge part of business and age has a lot to do with risk in many cases. For example, most car rentals refuse to rent to people under 25.

Getting an estate sorted out after death can take a long time, funds can get tied up and all this can mean that payments aren't made. I would also be interested in seeing statistics about loan default immediately after retirement. I imagine all this has an impact on the business.

 

[Beacon]

Re: UK Pricescopers question about mortgages -age discrimina

I'm fairly certain he got a 25 year mortgage, which is why I was wondering if it's only certain types of mortgage that are affected.

From what I read, there are lenders who will go to 75 or even older, but the borrower pays more. Now there are fewer and fewer of such lenders. The reason was neatly provided a couple posts up, by Jennifer W. The current UK law creates a defect in the reliability of the collateral under certain circumstances more likely to befall an older person than a younger one. The borrower is not the problem, the property is the problem, so the lenders don't want the risk.

This is not the case in the USA, so there is no need to penalize a borrower for being older than another borrower.

As JenniferW intelligently suggests, as properties get more costly and the requirements for downpayment rise (help-to-buy notwithstanding), there may, by necessity, be a change to this preference given to younger buyers. Otherwise ultimately the buyer pool will be reduced to the very rich or the foreign buyer.