FCA relaxes equity release affordability rules

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The FCA is letting lifetime mortgage lenders skip affordability tests for borrowers on interest-charging loans that can convert to roll-up loans.

Lifetime lenders can apply for a waiver to take advantage of the new ability.

The FCA says: “We have decided to make this modification available because we do not consider that an affordability assessment is required where there is no risk of arrears and repossession in the event of missed payments.”

The change means that the FCA may change the product disclosure rules in MCOB 9.4 and the key facts illustration text in MCOB 9 annex 1.

The FCA plans to consult on amending the MCOB rules.

It says: “These may differ in form from this modification, or may not be made at all. In the meantime, the modification will be available for one year, or until any amendment is made to the rules (whichever is earlier).”

Council of Mortgage Lenders director general Paul Smee says: “This may look like a small change, but it is a really significant one that should allow the lifetime mortgage market to develop in a far more sensible and consumer-friendly way.

“It removes one barrier to the provision of sensible, safe and worthwhile lifetime mortgage products.”

Equity Release Council chairman Nigel Waterson adds: “This has the potential to help more consumers make use of options already offered by equity release providers in later life and encourage further innovation within the market.

“We have been lobbying on the issue of affordability for lifetime mortgages for some time, and as part of our response to the FCA’s call for inputs at the end of 2015 and I am pleased that they have listened fully to our concerns. The optional payment of interest within a lifetime mortgage is different to that of a residential mortgage with the opportunity for consumers to switch to roll-up when they wish.”