02 June 2024

Common Later Life Criteria Queries: Guidance For Financial Advisers

By Pure Retirement

Understanding lending criteria can help deliver best outcomes for clients – in this article, we’ll examine some of the more common criteria queries and look at both why lenders might pose questions about them during the application process, and what conversations you can be having with your clients during initial meetings to manage expectations.

Estate rent charges

Estate rent charges are created by property developers, in order to provide ongoing funds for an estate management company. Owners of freehold properties on the estate are charged a rent amount, with the funds being used for the maintenance of communal areas – these could include car parks, private roads, or playgrounds.

In the past, open spaces and other communal areas on housing estates were adopted and maintained by the council. However, this has become increasingly uncommon and has been replaced with a structure whereby the maintenance of shared spaces are charged to each new-build property, with ongoing maintenance costs being shared between homeowners.

The law surrounding estate/rent charges enables the management company to enforce payment (including any arrears) by either repossessing the freehold property or creating a 99-year lease, both of which would rank ahead of any charge by a lifetime mortgage lender.

Unless these charges are capped, in line with a recognised RPI or the management company is run by the residents of the development, these propose a significant risk for many lifetime lenders.

When holding your initial fact findings, asking simple questions on estate rent charges will ensure a smoother application journey and help manage expectations. Similarly, it’s important to keep clients aware of the sort of things that lenders may question, as it helps them make an informed decision around their next steps and they could consider porting the mortgage to another property, and finding a suitable home that meets lending criteria.

Spray foam

Applying spray foam to a roof space can restrict air circulation, breeding condensation and potentially leading to the rotting of the roof timbers. Closed-cell spray foam also runs the additional risk of setting very hard, potentially placing additional stresses on the supporting timbers and distorting the roof itself.

The fact that the foam is sprayed in a liquid form means it gets into crevices and gaps, making it incredibly difficult to remove and very costly. In some cases, the expense of removing it may exceed the original installation cost. Additionally, in some cases the foam will have been sprayed directly onto the back of the roof tiles themselves, making it impossible to remove without replacing the entire roof. Even after removal, there's no guarantee the property would be approved for a mortgage, as the damage may have already been done.

The situation is further complicated in the case of lifetime mortgage lenders, as the mortgage is usually redeemed and repaid via the sale of the property. With residential mortgage lenders also being cautious about spray foam, the property could only be available to cash buyers, which also seriously affects its resale value.

(Please note that our Classic range of lifetime mortgages will consider spray foam, subject to its application during the construction of the property as part of the design, has not been applied to the tiles, or felting/battens, it is BBA approved and fully guaranteed, and has all the relevant building regulation certificates.)

It’ s important to manage customer expectations, as addressing this early on can save everyone a lot of time, and allow clients to assess their position and explore other avenues to fund their retirement as appropriate. It's also important to ensure that clients are aware of the consequences of having spray foam installed post-completion of their lifetime mortgage. While many might view it as a minor home alteration and have it done without notifying their lender, the reality is that it has major ramifications – both as a mortgage breach and the ability to sell the property to redeem the mortgage.

Flood zones

Flooding has been recorded as one of the most searched for lending features of lifetime mortgages on our online criteria search tool. As lifetime mortgage lenders, we use a combination of flood zones and bespoke flood risk reports to assess a property against our different products and their individual lending criteria.

Due to the length and nature of a lifetime mortgage, resaleability is crucial for us as it guarantees the property's value can cover the loan repayment when the borrower enters long-term care or passes away. Several of our lifetime mortgage products accept properties in flood zone 1 provided the property hasn't flooded in the last five years. However, each of our lifetime mortgages treat flood zones differently, so it’s worth discussing your case with our intermediary sales team.

The Environment Agency's flood zones are assessed every few years and zones can change due to changing weather conditions. If a client's property is placed into a higher flood zone during their lifetime mortgage, this wouldn't be classed as a breach of contract, as the client has no control over it. The only time a flood zone change could impact a client would be if they're applying for a further advance. As this is classed as a new loan, it would require a new valuation in the higher flood risk zone. If the client has a drawdown facility on the back of initial lending, then they can still access this regardless of any changes to flood zones.

As you are aware, the key to customer centric outcomes is to ensure effective upfront fact finding, through conversations with clients, utilising lender tools (such as our criteria search tool) or asking their Intermediary Sales team for further clarification if you’re unsure. It’s certainly something we actively encourage, as it helps us to aid advisers in finding the most suitable lifetime mortgage for their client wherever we can.

Visit our Insight blog for more criteria-related content

For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.