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ombudsman news

issue 139

January/February 2017

mortgages and age: what's in a year?

Just over a year since we published our insight into complaints about treatment based on age, ombudsman manager Simon Pugh explains the developments we’ve seen in the area of mortgages.

Simon, can you recap the insight the ombudsman shared in 2015?

We shared what we were seeing around 18 months after the introduction of the Financial Conduct Authority's Mortgage Market Review. And it was also around three years since the Equality Act replaced previous legislation designed to prevent discrimination against people with protected characteristics. Unless an exception applies, age discrimination is now unlawful - which wasn't the case under the old legislation. Importantly - as we highlighted at the time - one exception is for how financial businesses use age.

In our review, we looked at complaints we'd resolved over the previous two years or so that were about how consumers had been treated because of their age - two thirds of which involved mortgages. It was clear to us that businesses' and consumers' understanding of the law around discrimination varied considerably. We identified a number of cases where, because of their age, people had experienced difficulties moving home, paying off their mortgages or borrowing more money. And we found a number of examples of businesses making lending decisions that either weren't fair, or hadn't been properly explained.

so is age discrimination an issue in the mortgage complaints you're seeing?

Age-related complaints don't tend to happen in isolation. Often there's a wider trigger - such as someone being unable to repay the capital at the end of a mortgage, or wanting to port their mortgage product when they move house. And they tell us they believe that age is a factor in the lack of options available to them.

It's important to point out that age discrimination isn't necessarily unlawful in financial services - which is something that people who contact us are often surprised to learn. Briefly, because age is such an important factor in designing, pricing and offering financial services, different rules apply to those that apply to other characteristics, and in other industries. However, if a business does carry out a risk assessment where their customer's age is considered, it should refer only to information that's both relevant to assessing the risk and from a source it's reasonable to rely on.

In our review in 2015, we found that there were misunderstandings about this among businesses and consumers alike. And I'd still say that prospective borrowers aren't generally familiar with the law in this area - which isn't that surprising, as you probably wouldn't think too much about age discrimination until you felt it had happened to you. On the other hand, businesses' understanding seems to have been improving - in particular, of what information is relevant and reliable when they're making lending decisions.

so what's changed?

Around about the time we shared our own insight last year, the Building Societies Association published its own perspective on lending into retirement - which was followed in the spring by the FCA's thematic review on responsible lending following the Mortgage Market Review, as well as its wider work on the ageing population. While there's still work to be done, it seems lenders have responded positively to these and other efforts to encourage both responsibility and flexibility in their decisions.

We've certainly seen this reflected in the complaints being referred to us. On the whole, lenders are more willing to work around age limits - which they're entitled to set - particularly for existing customers. They're also applying policy exceptions flexibly. Some of these developments - including some lenders' decisions to revise their overall age criteria - have come about partly as result of the pragmatic conversations we've had as part of resolving individual complaints.

what problems are you still seeing?

It's been really encouraging to see these improvements. But we're still hearing from people who simply don't understand why a lender has refused their mortgage application. Lenders might not be obliged to explain their reasons. But where they don't, it can be frustrating for customers, who just want to know why they've been turned down at what could already be a stressful time. After all, applying for or changing a mortgage can reflect big life changes, which might be positive or not so positive.

Sometimes the reason comes out during our involvement, and we often find it's then easier for people to understand the lender's decision and move on from it. Equally, explaining their reasoning clearly can help a lender to reflect on their decision - and to identify and acknowledge things that might have gone wrong. And it sometimes turns out that while age isn't the reason for an application being turned down, the lender's poor communication has led their customer to believe it is.

So I think there's still work to be done around the communication of lending decisions - thinking about what the outcome means for that individual customer and, where it's not in their favour, how much they actually could be told about why that is. Of course, lenders might not want to share information that's commercially sensitive. But our experience suggests that the more open the conversations that happen early on, the less chance there is of complaints being escalated.

what about prospective borrowers being discriminated against for being pregnant?

That's something there's been interest about in the media. And it's true that some lending policies might be seen to disproportionately affect pregnant women, because they specify employment criteria it's unlikely someone on maternity leave would meet. For example, a lender might choose to disregard the income of anyone on long-term leave from work who isn't returning to work for three months.

In practice though, we've only seen a handful of complaints from people who feel they've been unfairly treated on the grounds of maternity or pregnancy. Of those we have seen, we've typically found they've arisen from miscommunication on the part of the lender. And we've generally managed to resolve problems informally with lenders - after talking through the fairness of their lending decision in view of their customers' individual circumstances.

Image: Simon Pugh, ombudsman manager

Simon Pugh, ombudsman manager

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.