Advisers could soon have a new product to advise retirees on as the FCA is set to bring back retirement interest-only mortgages to help older borrowers.
The regulator says in a consultation paper that it has found a regulatory barrier to helping older borrowers with maturing interest-only mortgages and those wanting to release equity from homes without interest roll-up.
The FCA lumped retirement interest-only mortgages together with lifetime mortgages as part of implementing the Mortgage Credit Directive, effectively calling both ‘lifetime mortgages’.
The FCA is now proposing to split the two sorts of loans out again.
The two products differ, mainly because pure retirement interest-only mortgages have no interest roll-up, require a less detailed sales process and need less advanced qualifications to sell.
At the time of the MCD there were no retirement interest-only mortgages on the market.
But as a wave of interest-only mortgages have neared maturity since the MCD was implemented, firms have been calling on the FCA to let them sell retirement interest-only loans again.
Firms told the FCA the classification was a barrier to them providing these types of mortgages.
The FCA consultation says: “We are revisiting this position because it may be restricting consumer access to retirement interest-only mortgages. For example, firms may be reluctant to complicate systems and staff arrangements set up for standard mortgage lending.”
The regulator adds: “Retirement interest-only mortgages have significantly different risks compared to lifetime mortgages. In particular, they do not feature the roll-up of interest, meaning that consumers are not at risk of rapid equity erosion and the subsequent reduction of funds available for a bequest.
“Consumers are also more likely to be familiar with the product features of a mortgage involving interest payments.”
But the regulator adds that it is proposing to add extra strings to any reintroduction of pure retirement interest-only mortgages.
For example, the FCA wants to amend MCOB rules on acceptable repayment strategies to include the sale of a property when certain life events occur.