FCA to relax equity release rules over market concerns

FCA to relax equity release rules over market concerns

The Financial Conduct Authority(FCA) is looking at relaxing some of its equity release rules over concerns they may be restricting the market.

Under the proposed changes, the regulator said it would make it easier for providers to offer a type of lifetime mortgage that allows consumers to choose when to stop making interest payments.

The FCA is also looking into whether it should update its rules on how firms should determine the length of term when illustrating equity release products.

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In its quarterly consultation, published on 2 September, the FCA said: “There is evidence that our responsible lending rules could have contributed to the restricted development and take-up of lifetime products that allow a customer to make regular payments but switch to interest roll-up at any point.

“The rules require the lender to carry out an affordability assessment because payments of interest are anticipated. However, the conversion to interest roll-up removes any risk of repossession due to defaulting on payments.

“The cost of putting systems in place to check affordability is constraining lender entry into this market because lifetime mortgage lenders typically only offer interest roll-up loans.”

To tackle this, the FCA is proposing to scrap the requirement to carry out an affordability assessment where interest payments are anticipated or required.

This would only be available to firms where the specific lifetime mortgage allows the consumer to exercise, at any time, an option to convert the product to interest roll-up.

Meanwhile, the FCA is also proposing to update the standard mortality tables in its Mortgages and Home Finance: Conduct of Business rules, because it is out of date.

The FCA said: “While the differences between the two sets of tables may appear small, continued delay in reflecting the availability of newer tables would lead to greater differences over time.

“In making this change we are also proposing to give firms the option of estimating the term on a different basis where their view is that this would be more appropriate.

“This flexibility offers scope for the illustration to be more tailored to the circumstances of the individual borrower.

“Although this could mean a consumer receiving illustrations from separate firms that use a different term, the existing rules already mean firms have to give out a second illustration where the consumer wants to specify the term to be used.”

Adviser comment:

Scott Gallacher, a financial adviser with Leicester-based Rowley Turton, said: “I can see a lot of downsides, but I am struggling to see many upsides.

“It has the potential to end badly, because if you are taking out an equity release mortgage, there is supposed to be a defined process, there is supposed to be a solicitor advising you and everyone should know what’s going on. Will that happen if it is just as simple as turning off the interest payments?

“The reason people don’t do equity release is because they don’t like it. A lot of people will go without because they are desperate to preserve their children’s inheritance.”