So in both countries it is cheaper to own than to rent, provided that interest rates do not rise before wages rise. Since this is our view it makes sense to investigate further. House building is running at around 110,000 down from 220,000 three years ago. Supply is running far behind national demand. House prices are no longer at a premium to old house prices, despite much lower running costs. With the house builders you are seeing 27% profit margins of 2007 now down to 7%, thanks to the need to swallow a 10% loss on 3 year old land banks. The shares are typically trading on 70% of sales, 10 times pre-tax profit. New land purchases at lower prices, should allow margins to rise to 17%.
PJ

Scrapping the default retirement age will impact on people’s financial planning for later life, and on lenders’ approach to mortgages, experts say

Scrapping the default retirement age (DRA) could have far reaching consequences for many people’s financial planning, experts cautioned today.

The move could particularly affect those taking out mortgages and saving for retirement. Most lenders currently refuse to lend mortgages that extend beyond the age of 65, but this is likely to change following the scrapping of the DRA.

Sue Anderson, a spokeswoman for the Council of Mortgage Lenders, the trade body that represents the vast majority of UK lenders, said this stance was already being reconsidered as part of the Financial Service Authority‘s mortgage market review.

She said: “For lenders the issue is what is the regulatory risk? If you can’t assume an age 65 tipping point, what can you assume? Should lenders default to a regulatory safe position of using a set age, or should they take a pragmatic approach and think, ‘Your income might go down by 70%, but we will presume you will have enough to pay off your mortgage’?”

HSBC and its sister bank First Direct have already adopted a stance that is likely to be taken up by other lenders. They will lend repayment mortgages to people who reach normal retirement age before paying off their mortgage in full, but ask for detailed information about the borrower’s pension funding and prospects.

They are more stringent still about lending interest-only and offset loans to older customers: HSBC refers applications to its specialist underwriters, while First Direct will not grant such loans to anyone who is likely to retire before the debt is paid off.

The change could reduce the popularity of equity release products, which are more expensive than straightforward mortgages. It also means there will be no fixed point at which employees should set their retirement expections.

Tom McPhail, pensions expert with independent financial adviser Hargreaves Lansdown, said: “The date on which they retire will be up to them and will not be dictated by someone else. Their retirement will depend on a combination of when they want to retire and when they can afford to retire. Symbolically this is an important shift. It means their retirement is their responsibility, for better or worse, and hopefully it will encourage them to plan ahead accordingly.”

Fulfilling a pledge

Despite the government facing considerable pressure from business to delay scrapping the DRA, employment relations minister Ed Davey announced it will be phased out between 6 April and October this year, fulfilling a pledge made in the coalition agreement.

Charities and consumer bodies representing older people have welcomed the move to scrap rules which allow employers to force staff to retire at age 65.

Chris Ball, chief executive of TAEN – the Age and Employment Network, said: “We welcome the coalition’s resolve to stick to its timetable for scrapping the DRA. Since its introduction in 2006 the DRA has robbed millions of the opportunity to work on past their 65th birthday despite their skills, experience and desire to go on working.

“However, allowing exceptions for certain groups of workers – such as air traffic controllers and police officers – is unacceptable. Any use of age as a proxy for ability and competence is discriminatory and will penalise people who are perfectly able and capable to go on doing their jobs and contributing to the success of the organisations they work for.

“The government needs to take age out of the employment equation. It is not about the date on your birth certificate, it is about whether you can do the job satisfactorily or not.”

Ros Altmann, director general of the Saga Group, said the move could help generate work for younger people: “Private pensions have not worked out as expected, annuity rates have fallen sharply, and our state pension is wholly inadequate to provide a decent lifestyle for most people.

“Therefore, increasing numbers of older people will have much less money to spend unless they keep working. If they are forced to live on meagre pensions they will not be able to provide the spending needed to create jobs for younger people and everyone will lose out in the long run.”

However, Una Farrell, a spokeswoman for the debt counselling charity Consumer Credit Counselling Service, urged people to plan their finances with caution, particularly when borrowing money.

“Although people will now be able to work beyond age 65, which should help their income, it does not follow that they will be able to find work. They may suffer poor health or be made redundant and find it difficult to get another job,” she said.

The Institute of Directors has criticised the move for reducing employers’ flexibility, even though fewer than a third of companies still insist on people retiring on their 65th birthday.

Davey’s announcement coincided with the publication today of the pensions bill, which includes raising the state pension age to 66, as announced by George Osborne in last October’s spending review.

Personal finance and money news, analysis and comment | guardian.co.uk

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