FOS rulings tell lenders to extend interest-only terms indefinitely

The Financial Ombudsman Service has told mortgage lenders in at least two cases to extend interest-only terms indefinitely for older borrowers.

The FOS has today published a number of case studies involving complaints made by older borrowers.

In one case, a borrower who had taken out an interest-only mortgage on a 25-year term in his early 70s complained that he thought he had a lifetime mortgage.

The borrower, now in his 80s, was worried he would be forced to sell his home in his late 90s.

The lender had accepted the sale of the property as the repayment vehicle when the mortgage was taken out.

The FOS upheld the complaint and ordered the lender to change the mortgage to one with no set end date, so the capital could be repaid on the borrower’s death.

The FOS says: “We were concerned that the mortgage company hadn’t given personalised advice – taking into account the borrower’s age and circumstances.

“Mr A was now facing the prospect of selling his home at nearly 100 years old – with 15 years of worry in front of him. We didn’t think this was fair.”

In another case, the FOS also recommended the term of an interest-only mortgage be extended “indefinitely” and be repaid upon death.

The borrower, a widow in her 80s, received a letter from her mortgage company explaining her interest-only mortgage was coming to an end.

When she asked for the term to be extended, the lender told her arrangements would have to be made to sell the house if she could not repay the capital.

The customer had taken out the mortgage when she was 75 and her husband had been 70. They had told the lender they did not have arrangements in place to repay the capital at the end of the term.

The FOS says: “We pointed out to the mortgage company that they’d already agreed to lend money to Mr and Mrs R into their 80s – knowing there was no repayment vehicle in place. In our view, Mrs R was in her current position because of their previous lending decision.

“We didn’t think it was fair to now simply say she was too old – and force her to sell her home.”

Lending into retirement has become one of the biggest issues in the mortgage market since the MMR.

Before the rules were rolled out in April 2014, many lenders cut their maximum age limits to 70 or 75, making it more difficult for borrowers to obtain finance if the loan extended into retirement.

More rigorous affordability assessments and a clampdown on interest-only lending has further restricted options for older customers.

The FCA recently called for lenders to develop more flexible mortgage products for older borrowers.

But the Building Societies Association says many lenders do not have the regulatory permissions to convert an interest-only mortgage into a lifetime mortgage.