The mortgage industry is at a crossroads. The Financial Conduct Authority (FCA) is considering changing the affordable pricing rules, so the way lenders evaluate borrowers is set up to evolve.
For years, rigorous stress testing for mortgage applicants has shaped the market, but growing consensus suggests that these rules may be closing viable borrowers, including those ages 50-90 and above. 
The government urged the FCA to reevaluate affordability requirements in an attempt to stimulate the housing market. Details still roll out FCA CEO Nikhil Rathi, but acknowledges the need for a more practical and flexible approach. The challenge is to balance it out. You may loosen the rules too much and increase the default rate. They're too tight, and many economically stable borrowers continue to be ruled out simply because they don't fit in a defined box.
Mortgage stress testing was a benchmark for evaluating affordability. The lender will use it as a parent to determine whether the borrower can handle economic shocks such as rising interest rates and sudden declines in income.
However, for older borrowers, who often have a mix of pensions, investments and rental income, traditional approaches can be a barrier rather than an impartial measure of financial security. Applying a one-size framework to groups with such diverse income sources creates unnecessary barriers.
Move towards a more comprehensive approach
For too long, later lifetime borrowers have been satisfied with the default response of “no”. Industry needs to shift to a more thoughtful, coordinated approach that reflects the actual financial situation rather than the standard formula.
The narrative of lending to older borrowers must change. This is a demographic that is worthy of options rather than obstacles. Instead of viewing loans in life later as a risk, the industry should view it as an opportunity to grow and serve a financially competent customer base.
A more comprehensive approach means rethinking mortgage products and standards to match today's borrower's reality. This means offering a wider range of products for different needs, including capital and repayments, interest only, retirement benefits only (RIO), or stock releases.
It means taking a holistic view of your income stream, acknowledging that pensions, investments and rental income are as effective as traditional payroll. They also need to separate from stiffness and embrace the nuance of affordability, ensuring that viable borrowers are not ruled out by outdated rules.
Innovation in lending in later years
Technology can improve efficiency. However, the human aspect of lending remains essential. Responsible loans aren't just numbers on screen. It's about understanding the people behind them. A thoughtful and empathetic approach ensures that borrowers are not merely valued, but are truly heard. Fact discovery, clear communication, and commitment to customer-first lending are always the basis for responsible financial decisions.
As the industry moves towards changing regulations, those who embrace flexibility, innovation and customer-centric thinking are perfect for thriving. The borrower of life should not be an afterthought of a mortgage loan. With the right approach, you can be at the heart of a more dynamic and comprehensive mortgage landscape.
Les Pick is the sales director for Livemore's equity releases
