Departure of the Default Retirement Age Increases Mortgages

There is a chance that in the next several months, the default retirement age in the UK, otherwise known as the DRA, will be dropped. The reach of the consequences would be great, and the effects are not fully known yet. Mortgages especially would be affected, since they could be offered to those over 65 without any problems. Currently most companies are not issuing mortgages for those over the age of 65 since they are technically considered retired by this age. Overall, the changes to the volatile mortgage market in the UK would mean more mortgages being issued and approved.

Experts in the financial markets of the United Kingdom, especially the mortgage markets, issued statements this week regarding the implications of such a move. The move would likely affect certain groups of people in the UK such as those who are going to be taking out mortgages or saving for their retirement. Both of these events require large sums of money, and such amounts may be hard to come by this year. Currently, most lenders are not issuing mortgages to people who are over the age of 65. If the mandatory retirement age is dropped, the reluctance would likely also be dropped.

Recently, a spokesperson for the Council of Mortgage Lenders named Sue Anderson made a statement regarding the impact that changing the mortgage supply would have on the entire mortgage market in the UK. The mortgage market review from the Financial Service Authority found that the effects would reach the vast majority of mortgage holders. With the dis-use of this age system, mortgage companies may be stuck when it comes to figuring out how best to approach the calculation of the loan. In the past, the age of 65 was used as a standard age. This made calculations fairly easy, since it was assumed that those who were over the retirement age would certainly be making less money than those who had not yet reached it. The mortgage companies could then calculate how much the mortgage amount and associated rates should be.

The amount of risk that these mortgage companies should take was not really known, since the age of income generation may be increased. Lenders may have to assume information about the size of the loan and the percentage at which the agreement should be issued at.

In a move that will likely have other lenders follow suit, HSBC and its associated bank First Direct have already decided on the idea to lend repayment mortgages for those who obtain normal retirement age before they can begin paying off their mortgages in full. In order to make a more clear calculation, the lender may also glean information about the mortgage holder’s pension or other sort of retirement income. HSBC has been fairly strict lately with its mortgage lending. HSBC has been referring applications for mortgages to underwriters. On the other hand, First Direct has decided to not grant loans of this kind to anyone who plans on retiring before the debt has been paid off.