CeMAP MRT2 Repayment Methods & Interest Rate Options question: jointly for a retirement interest-only mortgage

CeMAP MRT2Repayment Methods & Interest Rate Options

Emrys, 72, and Branwen, 69, apply jointly for a retirement interest-only mortgage. Emrys's pension provides most of their income and pays no spouse's pension; Branwen has a small pension of her own. What does MCOB 11.6.15G say the lender should consider?

A Only their joint income today, because both borrowers are liable for the full debt while they are alive
B Only Emrys's income, because the larger income is the one the lender relies on to meet the payments
C Whether one could keep paying if the other died, because Branwen could lose most of their income
D Nothing further, because the capital is repaid from the property on the first death of either borrower

Show the answer and explanation

Answer: C. Whether one could keep paying if the other died, because Branwen could lose most of their income

MCOB 11.6.15G(4) says that for a joint retirement interest-only mortgage the firm should consider the ability of a single borrower to continue making the required payments if the other dies, taking into account evidence such as pensions payable to the surviving spouse or civil partner. Here Branwen could lose most of the household income on Emrys's death, so this test matters. Joint income today is not enough, and the loan is not repaid on the first death; it continues for the survivor.

Common mistake

Assessing joint income only and ignoring the survivor's position.

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