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FCA urged to rethink equity release affordability rules

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The Equity Release Council is urging the FCA to consider easing mortgage affordability rules to help consumers make interest repayments before swapping to a roll-up deal.

Changes to the Mortgage Conduct of Business rules following the Mortgage Market Review mean lifetime mortgage contracts which permit consumers to pay interest for a period are subject to providers’ requirement to assess their affordability.

This is despite the fact that interest payments are always optional and customers will never lose their house by being unable to pay this way, according to the ERC.

The council says some customers fit for lifetime mortgages might not now pass affordability assessments, may not want to go through 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 ERC says.

The request from the council was 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.

Equity Release Council chairman Nigel Waterson says: “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.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. The FCA needs to rethink E/release, full stop

  2. Equity release is best advised by those with the qualifications, the experience, the planning know how. It is NOT a mortgage product and investment advisers should not have to have mortgage permissions at great expense to advise on it for what is ultimately a last resort solution. It needs a rethink and it alarms me the adverts I see for Equity Release as if it is a cheap option to release cash. It should be advised by professionals.

    • I agree Sam. My trainee and I both have the equity release qualification so that we can consider them as part of an overall approach to out clients needs, but as they say, they are a last resort, which needs to have been mentioned as part of their plan from an early age (i.e. we discuss it when they actually retire, explain why they DON’T need it yet, but make sure they know we may raise it again in 15 or 20 years time). so far, since the noughties, as a firm, I think we’ve arranged FOUR. Yes, that’s FOUR. I have the Long Term Care qualification too and so far the only PRODUCTS I have arranged were BEFORE the exam existed!

  3. It doesn’t help the cause much when the stock photo of Nigel Waterson appears to be on his release from prison. Probably just me.

  4. @ Phil Castle. I’m with you Phil, I have the equity release qualification and only use it as a last resort, the Halifax home retirement plan & Abbey equivalent was an ideal interim alternative for individuals that had the income to meet & maintain the interest due and wanted the certainty of knowing exactly how much was outstanding and still allowed them the potential for equity release or access to greater equity via a sale. The 40 year term took the pressure off individuals to sell and as long as they were comfortable with the concept of maintaining the interest payments for the duration of the term it was an ideal contract.

    The risk averse LLoyds and Santander killed them off as they didn’t sit comfortably with their criteria and nor did it meet the FCA s policies as they have continually viewed interest only as a lepers product thus creating unintended consequences by forcing the elderly individuals who have good income levels but who wish to access capital out of their property to take out equity release or to sell for it.

    The FCA should not just review the affordability of equity release but it should review the whole concept & needs of the elderly borrowers as their current regulatory stance is forcing them into more expensive alternatives,

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