The Equity Release Council (The Council) has asked the Financial Conduct Authority (FCA) to consider whether a relaxation of mortgage affordability rules could help more lifetime mortgage customers take up the option to make interest repayments initially before switching to a roll-up arrangement.
Amendments to the Mortgage Conduct of Business (MCOB) rules following the Mortgage Market Review (MMR) mean that lifetime mortgage contracts which permit, but do not require, consumers to pay interest for a period are subject to the requirement of providers to assess their affordability.
This is despite the fact that payments of interest are always optional and that customers will never be at risk of losing their home as a result of being unable to continue with interest payments.
As a result, some customers who would have taken out a lifetime mortgage giving them the option to repay interest for as long as they wished might not now pass affordability assessments, may be reluctant to subject themselves to the assessment process or be recommended alternative products.
The Council has asked the FCA to consider whether a relaxation of rules originally designed for residential rather than lifetime mortgages would help more consumers unlock their housing wealth while protecting a larger amount of equity in their property. A relaxation might also support existing providers’ ability to expand their product range and encourage new entrants.
The request from The Council formed part of its evidence submission to the FCA’s Call for Inputs on competition in the mortgage market. The FCA is set to outline next steps in the form of a summary statement in the first quarter of 2016.
The Council’s submission included a separate request for the FCA and Government to consider the long-term impacts of decisions relating to tax and regulation which may affect equity release lending.
It also recommended that the FCA engages with the Prudential Regulatory Authority (PRA) to consider how equity release is currently funded, the extent to which current prudential requirements create barriers for firms and whether a broader approach could be taken which would enable alternative sources of funding to be accessed.
Nigel Waterson, Chairman of the Equity Release Council, commented:
“We welcome the proactive decision by the FCA to review whether there are any barriers to competition in the mortgage sector. Retirement lending is a crucial part of this and there needs to be careful consideration of the factors which differentiate ‘residential’ and ‘lifetime’ borrowing.
“As part of our wide-ranging input we highlighted that revisiting affordability rules may help more consumers to make use of options already offered by equity release providers in later life, as well as encouraging more new entrants to the market.
“There is a growing recognition that equity release has an important part to play in the planning of funding for later life, and we look forward to working together with the FCA on the back of its findings.”
For further information, please contact:
- Andy Lane, Victoria Heslop, Sam Fisk or Jordan Campbell at Instinctif Partners, on 020 7427 1400 or email [email protected]
About the Equity Release Council – www.equityreleasecouncil.com
The Equity Release Council is the industry body for the equity release sector, which represents over 400 members including providers, qualified financial advisers, solicitors, surveyors and other industry professionals.
It works to ensure a safe equity release market for consumers, by operating rigorous Standards for the provision of advice and products which guarantee security of tenure and financial protections. 2016 marks the 25th anniversary since the first industry Standards were created for equity release in 1991. Since then, over 350,000 consumers have taken out an equity release plan from Council members, drawing on almost £17bn of housing wealth.
The Council also works with consumers, industry and policy makers to improve awareness and understanding of equity release and the potential for housing wealth to help solve many of the financial challenges facing people over the age of 55 across the UK.