Home dream becomes a nightmare for over-40s as well

THE idea of a house being an investment, rather than simply a place to live, became popular during the 1980s.

Under the Right to Buy scheme, introduced by Margaret Thatcher, ordinary working class people were encouraged to save some of their hard earned money to buy their council houses and thus have a meaningful stake in the country’s future.

The British landscape has changed radically, and in more ways than one, since then, of course.

The start of the Millennium coincided with a boom in property prices that continued for the next seven or eight years until they hit a brick wall in the shape of the biggest global economic crash since the 30s.

Fourteen years ago you could pick up a three-bedroom ex-council house in leafy Roundhay for just £50,000, whereas today you’d get little change out of £125,000. When you factor in all those years of paying off the initial mortgage then that’s a tidy return – if you happened to be one of those who benefitted.

And here’s the rub, it worked out well if you happened to be in the right place at the right time. But many people missed out, while others have found themselves entrapped by negative equity having paid over the odds for a property just before the bubble burst.

The result of all this is that many 20 and 30-somethings in this country can’t afford to buy a house or a flat. But they aren’t alone. Increasing numbers of home buyers over the age of 40 are being denied mortgages because they are too old. New rules mean that lenders are now restricting loans to anyone who will still be paying off their mortgage by the time they retire.

Yet many people cannot afford to buy a home until they are 40 or even 50, say some of the largest lenders, and under a typical 25-year term, a 45 year-old borrower would be 70 before the loan was paid off.

The new rules – known as the Mortgage Market Review (MMR) – were introduced by the Financial Conduct Authority (FCA) in April this year, to enure that people could afford to pay back what they borrow.

But a group of 24 banks and building societies, including Nationwide, Barclays and Santander, says the rules are preventing lenders offering mortgages to anyone who will retire before the loan is repaid.

Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), which represents the 24 lenders, has called for the upcoming review of the MMR by the Financial Conduct Authority (FCA) to provide greater clarity.

“Uncertain pension incomes make it difficult for lenders to assess mortgage affordability in later life, and this may become even harder when the new pension freedoms take effect next year,” he says.

“To avoid a situation where regulation brings about the extinction of mortgage terms that stretch into retirement, we need clarity and confirmation about where the boundaries of responsible lending 
truly lie.

“Wherever possible, protecting consumers from themselves should not rule out options that would benefit them financially and meet an obvious need.

“Restricting access to mortgage credit is the right decision in some circumstances for the consumers’ long term security, but equally there are situations when a refusal to lend can prove to be to the borrower’s financial detriment.”

Which is why he wants to see the rules clarified. “We need to strike a balance and the FCA review will be vital so that an update to the MMR rules can iron out some of these creases.”

So although bricks and mortar are still viewed as a sound investment, the concern for some is that the goalposts have been changed.