The Financial Ombudsman Service (FOS) have recognised that with people generally living and staying active for longer, retirement and older age could cover a period of 30 years or more. In that time, people are very likely to make key decisions about money and budgeting for the years ahead. Older age however could mean a greater likelihood of health problems or decreased mobility which could leave certain people financially, and personally, vulnerable particularly those who are not confident or comfortable with their financial position. FOS research on “vishing” scams found that 80% of victims were over the age of 55.
Last year, one in four of the complaints resolved by FOS were brought by people aged 55+. Older age groups are more likely to contact FOS about their mortgages, with some in particular complaining that they have been treated unfairly by their mortgage provider/lender when they reach the end of their mortgage term. Some feel discriminated against because of their age and that their lender is relying on strict, inflexible rules. In deciding if a lender has acted fairly, FOS will check that they have followed their own policies, processes, good practice and that it has considered their customer’s individual circumstances. Not all complaints will involve discrimination or unfair practices but FOS will also look into how clearly the lender explained their actions and decisions as shown in the following case studies recently issued by FOS.
Mr A, in his 80’s, rang his lender to ask a question about his statement but during the call he discovered his mortgage had a 25-year term, whereas he thought he had a lifetime mortgage.
Mr A realised that this meant he would be forced to sell his home in his late 90s. He complained to the lender, asking them to change his arrangements but they refused on the grounds that they had not given Mr A advice about what mortgage to take out and that he had been given clear information about the terms he was signing up to.
Mr A contacted FOS.
From the information the lender sent FOS, it was confirmed that Mr A had an interest-only mortgage with a 25-year term. He had taken it out jointly with his wife when they were both in their early 70s (although Mrs A had died a few years later). At the time, the lender had agreed that the sale of Mr and Mrs A’s home was an acceptable “repayment vehicle”.
In FOS’s view, the question was not whether Mr A had been given clear information about the mortgage. In fact, FOS agreed it was clear. Instead, they were concerned that the lender had not given them personalised advice, taking into account their age and circumstances. Mr A was now facing the prospect of selling his home when he would be nearly 100 years old, with 15 years of worry in front of him.
FOS considered this unfair and directed the lender to convert Mr A’s 25-year mortgage to a mortgage with no set end i.e indefinitely. Mr A’s monthly pension payments were enough to cover the interest payments meantime, with the capital being repaid when his house was sold after he died.
Mrs R, a widow in her 80’s, received a letter from her lender which explained that the term of her interest-only mortgage was coming to an end and asked her to get in touch to discuss her options.
When she contacted the lender, Mrs R asked if the mortgage term could be extended for the rest of her life, meaning the capital would be repaid when her house was sold after she died. The lender refused on the basis that it was their policy not to extend the mortgage terms of borrowers aged over 75 and as Mrs R could not repay the capital, they would have to make arrangements to sell her house.
Mrs R complained, but the lender refused to change their position. Fearing she would be made homeless, she contacted FOS.
FOS asked the lender for information and found that when the mortgage was taken out (interest-only over 10 years), Mrs R had been 75 and her husband had been 70. They had told the lender at that time that they did not have any arrangements in place to repay the capital at the end of the term.
The lender explained that, in their view, Mrs R still had time to find a way of repaying the capital and they did not think it was fair to act outside their lending policy, particularly when other options, like converting the mortgage into a lifetime mortgage, would require constant reviews. In their view it would be in Mrs R’s best interests to sell her house.
FOS considered Mrs R’s financial position. Whilst her pension covered the interest-only mortgage payments, it was unlikely she would be able to pay off the mortgage capital.
FOS said “ We pointed out to the mortgage company that they’d already agreed to lend money to Mr and Mrs R into their 80’s, knowing that there was no “repayment vehicle” in place. And in our view, Mrs R was in her current position because of their previous lending decision. We did not think it was fair to now simply say she was too old, and force her to sell her home”.
FOS directed the lender to extend the term of the interest-only mortgage indefinitely, so the capital could be repaid when Mrs R’s home was eventually sold.
The Financial Conduct Authority (FCA) have recently called for lenders to develop more flexible mortgage products for older borrowers however the Building Societies Association contends that due to regulatory constraints it is not currently possible to convert an interest-only mortgage into a lifetime mortgage. However these case studies show that lenders will now have to consider all circumstances when dealing with older borrowers whose mortgages have reached end of term and to consider extending terms indefinitely over the borrowers remaining lifetime, otherwise they face similar complaints to FOS.
If you have any queries arising from this article then please contact our Dispute Resolution team on 0131 226 8200.