FCA asked to ease affordability rules

FCA asked to ease affordability rules

The Equity Release Council has asked the Financial Conduct Authority to consider relaxing mortgage affordability rules.

The trade body argued that relaxing affordability rules could help more lifetime mortgage customers take up the option to make interest repayments initially before switching to a roll-up arrangement.

Following the Mortgage Market Review, amendments were made to the Mortgage Conduct of Business rules. These amendments mean lifetime mortgage contracts that permit, but do not require, consumers to pay interest for a period are subject to the requirement of providers to assess their affordability.

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According to the Equity Release Council, this is despite the fact that payments of interest are always optional and customers will never be at risk of losing their home as a result of being unable to continue with interest payments.

Some customers who would have taken out a lifetime mortgage giving them the option to repay interest for as long as they wished may not now pass affordability assessment and, as such, might be reluctant to subject themselves to the assessment process or to be recommended alternative products, the council warned.

The ERC 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.

According to the council, a relaxation might also support the existing providers’ ability to expand their product range and encourage new entrants.

Adviser view

Dean Mirfin, technical director at Key Retirement, said: “These loans convert to roll-up in the event of default, be that voluntary or otherwise.

“Many consumers want this type of loan for this very purpose, yet affordability requirements mean that many simply do not qualify to support the interest payments over the longer term – the very reason that this type of loan was created.”