Why people in the 30s and 40s can’t get a mortgage anymore

Borrowers in their 40s are being turned down for mortgages by lenders running scared that future financial regulators could accuse them of mis-selling.

Even people in the 30s could be turned down for a home loan if they were to apply for a longer-than-standard loan.

The warning has come today from the Intermediary Mortgage Lenders Association, which has examined the world of post-financial crisis mortgage regulation.

It warns that that there’s a growing army of older borrowers who don’t fit into lenders’ standard terms, and consequently could be turned down.

Anyone who applies for a loan that is likely to remain outstanding beyond their normal retirement age is facing a negative response, the IMLA warns.

And the number of people that applies to is rising. With house prices climbing faster than incomes, many borrowers are not able to buy a family home until their forties or even fifties.

But anyone over the age of 40 seeking a loan with a standard term of 25 years will be borrowing beyond a normal retirement age of 65, and is liable to find their options restricted.

“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,” said Peter Williams, executive director of IMLA.

With recent changes to mortgage rules requiring lenders to ensure mortgages are affordable for the lifetime of the loan in order to “protect borrowers from themselves”, many lenders now feel that lending into retirement carries extra risk if borrowers find at a later date that their retirement income disappoints, he claimed.

He adds that many mortgage lenders have imposed lower maximum age limits rather than risk future accusations of breaching the rules where customers’ pensions prove insufficient to keep up their mortgage repayments after they retire.

“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,” Mr Williams said.

The City watchdog is expected to review the mortgage rules in the first half of 2015.

“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,” Mr Williams said. “We need to strike a balance and the review will be vital so that an update to the rules can iron out some of these creases.

“We must ensure that any divergence in the marketplace does not result in excessive pricing for non-standard borrowers and that access to a full range of products continues for this growing army of consumers,” Mr Williams added.