Age discrimination in mortgage lending

Updated November 2011

Minimum lending ages and a hesitance to lend to anyone who has retired are not uncommon – but will the Equality Act 2010 (EqA) and the rules on age discrimination have an impact on the mortgage market and require new thinking across the industry?

Lawyers and other commentators think so, and you will need to ensure that your mortgage conditions and lending practices are compliant, or you risk claims by individuals or being under investigation by any one of the Equality and Human Rights Commission (EHRC), Financial Services Authority (FSA), Office of Fair Trading and Financial Ombudsman Service. Such claims and investigations could not only prove costly but may cause damage to reputation.

The EqA prohibits:

• refusing to provide the service;
• providing the service but on different terms to those offered to others; and
• subjecting anyone to any other detriment, on the grounds of a protected characteristic – which includes age as well as disability, race, sex etc.

The EHRC has issued guidance on the EqA and will continue to update this as further provisions of the Act come into force and discrimination issues develop.

Mortgage providers will no longer be able to hold lending criteria that excludes borrowers above or below a certain age from applying for a mortgage. On the face of it, this seems to be in conflict with the FSA's requirement for responsible lending. Offering a mortgage to someone who has retired, for example, is likely to indicate that their ability to repay will be lower. Linking lending to retirement is currently permitted under MCOB 11 which requires firms to take reasonably anticipated income into account when assessing affordability. This is echoed in the latest Mortgage Market Review (MMR) position. It will be interesting to see how the MMR will take the EqA into account, if at all, when the rules are finally published.

Equally, most lenders do not offer mortgages to people under the age of 21 as it can be difficult to identify a consistent employment or credit history at this age. Lending to someone who cannot demonstrate affordability is certainly not responsible lending.

However, the changes to assessment practices that will be made as a result of the EqA will not mean that an applicant can be offered a mortgage even where they cannot demonstrate affordability. On the contrary, mortgage providers will have to resort to more traditional underwriting methods of assessment on a case by case basis, as opposed to making assumptions based on protected characteristics. An assessment on the merits of a particular case (rather than automated decisions based on standard lending criteria) should, in theory, promote responsible lending.

Under MCOB 2 a firm may not exclude or restrict the duties it owes to a customer (which includes a potential customer) unless it is reasonable to do so. Lenders owe a duty to potential customers to comply with the rules and regulations applicable, which will include the requirements under the EqA. It will therefore be imperative that firms review their documentation and lending criteria to ensure there is nothing that excludes certain classes of customers on the basis of their age, as this would not be 'reasonable' under MCOB.

The provisions in the EqA relating to age discrimination in the provision of goods and services are not yet in force – this is likely to be April 2012 – but we recommend that you review your lending criteria, underwriting practices and mortgage conditions ahead of this date to ensure that you have time to make any necessary amendments and implement compliant practices as soon as possible.

We would in any event recommend that lenders carry out regular health checks on their documentation (approximately every 12 months) to ensure it remains compliant with the myriad of complex legislation, undertakings and constant changes to the FSA's Rules.

TLT’s Employment and Financial Services Regulation teams work closely together on discrimination issues and so are well placed to assist you in a health check or to provide advice in relation to the changes required under the EqA. If you would like our assistance, please contact Suzanne MacDonald, Partner and Head of our FSR team.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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