Pension freedoms cause problems for older borrowers

May 24, 2017 by Brendan O'Neill

Borrowers

People aged over 55 may find that pension freedoms are making it harder to obtain a mortgage, according to a former pensions minister.

Steve Webb states that pension freedoms are creating inconsistent incomes, making lending more complex. The former pensions minister spoke at the annual conference of the Building Societies Association. He warned that thousands of retirees will face problems when applying for a home loan. His warning adds pressure to lenders to relax the current rules for borrowers who are either approaching retirement or retired.

Webb admits that although he was one of the engineers of pensions freedoms, the downside is that not buying an annuity won’t provide a guaranteed income. Pension freedoms were introduced in 2015 by the Conservative government to allow people aged 55 and over to have more say in the way they access their savings. Those eligible can withdraw a percentage, or even the whole amount, of their pension pot, rather than buy an annuity.

Annuities are often favoured by lenders as they provide a guaranteed income during retirement. As income in retirement is no longer guaranteed for borrowers who have access to their pension pot, lenders will have to consider stricter affordability rules. This may mean that a lack of guaranteed income results in a mortgage application being denied.

This type of problem is just one analysed by mortgage advisors, who have studied on a CeMAP training course, prior to gaining many years of experience in the field.