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Guidance at retirement should cover mortgages, CML says


Published: 23 September 2014 | Author: Bernard Clarke

We are urging that government plans to introduce free guidance for those about to retire should explicitly refer to outstanding debts, including mortgages.

In our response this month to the Financial Conduct Authority’s (FCA) consultation paper Retirement reforms and the guidance guarantee, we argue that a considerable number of people taking advantage of the government’s decision to provide free guidance at retirement will still have an outstanding mortgage. We believe that it is therefore crucial for mortgage commitments to be taken into account at this point.

The Survey of English Housing suggests that more than 1.3 million households are headed by someone aged over 55 who still has a mortgage. Households with a mortgage account for more than one-third (36%) of those aged 55 to 64, 11% of those aged 65 to 74 and 3% of those of those aged 75 or more.

Some of these borrowers may have an interest-only mortgage, and questions might usefully be asked as part of the guidance about whether customers are confident about their plans for paying off the loan. 

In most cases, we would agree with the assumption by the FCA that the purpose of guidance should not be to tell customers what to do. However, if they are concerned about repaying capital on an interest-only mortgage, they should be advised to contact their lender – or at least asked if they have sought to make contact.

There should be no automatic assumption that a pension pot ought to be used to pay off the capital even if, in certain circumstances, that might be an appropriate course of action. 

It is likely that any decision to do this would be one on which an independent financial adviser would be best placed to offer advice. There would be a range of issues to consider, not least the impact on future pension provision should someone choose to use their pension pot to pay off a mortgage. Their lender would not be in the best position to provide advice in these circumstances, our response argues.

Similar considerations could arise for those that have other debts, who would also probably be best helped by an independent debt adviser. If the customer is in arrears with their mortgage, we urge that they should be advised to contact their lender – a course of action we would always recommend in these circumstances. 
More generally, our response recommends that consumers preparing for a guidance appointment should be given a list of information to gather in advance. That would help ensure they make best use of guidance, and do not risk failing to make the right decisions because they do not have all the right information to hand.