Income drawdown creates conflict for older borrowers

November 7, 2015 by Brendan

Lenders

The new pension freedoms could cause difficulty for older borrowers that are looking for a mortgage. Some lenders have announced that they won’t

take income drawdown into account when assessing affordability, although they will accept an annuity.

The report appeared in Mortgage Strategy, which stated that most lenders would only consider annuities when calculating income following retirement age. Santander, Yorkshire Building Society, Coventry Building Society and Virgin Money are among those who won’t accept income drawdown, but will accept an annuity. A spokesperson for Virgin Money said:

“In line with other forms of savings, we do not take drawdown into consideration for the purposes of affordability as it is not considered a regular or guaranteed form of income.”

To make the mortgage application process even more confusing, some lenders will take drawdown income into account, including Royal Bank of Scotland, Lloyds Banking Group and Clydesdale Bank. According to a spokesman for RBS, drawdown income and annuities are both classed as pension income and would therefore, be taken into account. He added that the lender would ask for confirmation of pension income in the future, to ensure that the mortgage was affordable.

A spokesman for Lloyds said that it would take drawdown income into account, although it would be more difficult to prove a regular, guaranteed income than for an annuity and other pension income. Older borrowers who are considering applying for a mortgage may want to consult a mortgage adviser who has studied a CeMAP training course, so they can be sure of obtaining the most suitable mortgage.