Ipswich Building Society to Include Pension Assets in Affordability Checks
Ipswich Building Society is further improving its criteria for lending to older borrowers by allowing more flexibility when assessing SIPP/pension funds in affordability calculations for over 55s.
Charlotte Grimshaw, head of intermediary relations at Ipswich Building Society said: “This is the latest change in our campaign to improve the options for those borrowing in, or into, retirement. By accepting pension assets as part of our affordability calculations we are recognising that this ‘available income’ can, and should, be taken into account when assessing an applicant’s future ability to repay their mortgage.”
The Society will take 80 per cent fund value of a pension fund that is not being drawn, divide it by the mortgage term and use this as gross income to support the affordability assessment, and the background loan to income calculation. However, borrowers are entitled to have withdrawn the 25 per cent tax free amount, or more, should they choose to do so, before the remaining pot is used in calculations.
The Society stipulates this does not apply just to uncrystallised pension pots: if an applicant is drawing a minimum amount from their pension due to having other income, or is still working and therefore only needing a top up, it will still consider what they could sustainably take from the pension over the term of the mortgage. If this is more than the current drawings, the assessment would use the higher amount (making sure only 80 per cent of the fund value over the mortgage term is used).
For example, for an individual with a pension fund worth £500,000, utilising 80 per cent results in £400,000. Calculating this over a 15-year term results in the individual having an additional £26,666 pension income for the purposes of the affordability assessment.
Validation of the fund value will be required via a recent statement from the pension provider.
Grimshaw added: “We believe this approach is the right way to go to ensure later life borrowers are not penalised for choosing to leave their pension savings invested for the potential of future growth. We know that older borrowers are taking a more rounded approach to their finances and, as a mortgage lender, we must do the same. We hope that by taking available pension funds into consideration and not just standard pensionable income, that a greater number of creditworthy older borrowers will be able to access a mortgage. Whether it’s for the purpose of gifting deposits, buying a holiday or second home, or preparing their current home for the future – there is a growing market for mortgages in later life and we’re here to make these aspirations a real possibility.”
The Society will continue to offer its mortgages with no maximum age on a capital and interest repayment basis. For interest only, a maximum borrower age of 95 at the end of the mortgage term applies. The Society has a maximum term of 40 years, even if the applicant is already in retirement (25 years for buy to let).