Over 80% of retired homeowners can’t access a mortgage of any kind that meets their needs, according retirement mortgage specialist Responsible Life.

Stringent affordability criteria that fail to treat pension drawdown as income and rely solely on the lower guaranteed income of a surviving spouse are largely to blame, according to Responsible Life. The provider also questions why lifetime mortgages are not more widely accepted by providers as an eligible future repayment plan for traditional mortgages and Retirement Interest Only mortgages (RIOs).

The findings stem from analysis of data collected by the Retirement Mortgage Service (RMS), Responsible Life’s pilot project to create a whole-of-market retirement mortgage broker.

The aim of the pilot was to identify areas where the retirement mortgage market could better serve consumers. Analysis of RMS data has now revealed that 82.8% of over-55s who needed a mortgage or remortgage didn’t qualify for any product of any kind — freezing them out of the mortgage market completely.

RMS says that RIOs held “great promise” when they were introduced in 2018 but only the less generous guaranteed income of a surviving spouse can be taken into account for affordability tests. This dramatically reduces the borrowing power of retired couples at the outset. Many retirees attempt to borrow at ratios of more than 10 times their guaranteed income, suggesting there is still a lot of confusion about how affordability in the later life lending market works, the firm said.

The unintended consequences of so-called pensions ‘freedoms’, introduced in 2015, have only made matters worse because drawdown of pensions haven’t typically qualified as acceptable income under affordability calculations.

Similar challenges are posed by lifetime mortgages. As these products come with the ability to defer and roll-up the interest, they necessarily offer lower loan to value (LTV) ratios than other products, so many consumers aren’t able to access as much finance as they expect, RMS argues.

Steve Wilkie, executive chairman of Responsible Life, said: “Retirees are being frozen out of the mortgage market because they are being sabotaged by affordability rules that are not fit for purpose.

“Retired borrowers should be allowed to show a greater variety of repayment strategies to unlock lending in later life. These should include plans to downsize, pension drawdown and reverting to lifetime mortgage products at the end of a mortgage term.

“Such flexibility would be in the spirit of other financial innovations that have sought to make it easier for the over-55s to navigate retirement, namely pensions freedoms.

“The interaction between products and their features in the later life lending market must be urgently addressed if they are to meet societal needs. The country would feel a net benefit from improvements in these areas.”