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FCA calls for more flexibility in mortgage market

FCA calls for more flexibility in mortgage market

The mortgage market needs more flexibility to help young people onto the property ladder, the Financial Conduct Authority has stated.

In its discussion paper on intergenerational differences, published yesterday (May 2), the regulator stated the working ways of ‘millennials’ — those between 23 and 38 years old — meant fewer young people were able to prove to lenders that they could afford a mortgage policy.

It said those with less reliable and stable sources of income, such as self-employment, zero-hour contracts or agency work, found it harder to pass standard affordability assessments.

The FCA also pointed out that there was more movement between the workplace and further education as young people tended to join the labour market, go back into education, then enter the labour market again later.

This required greater flexibility in the mortgage space, the City watchdog stated.

The FCA also noted that a steep rise in house prices compared to wages had stifled the younger generation’s ability to buy a house.

According to the ONS, house prices in real terms have increased by 259 per cent in the past 30 years, compared to a 68 per cent rise in wages.

The FCA stated schemes such as Help-to-Buy had gone some way to help young people meet the cost but stressed many other consumers turned to the ‘bank of mum and dad’ or other family members, such as grandparents, to raise the funds.

Last week, a House of Lords committee stated younger generations needed more support from older generations to afford property than ever before and urged the watchdog to ensure the market allowed for innovation.

In today’s report, the FCA encouraged more innovation in later life lending so older generations can benefit from products that meet their needs to maintain living standards once retired as well as provide younger family members to purchase a house.

But there could be commercial barriers to innovation in the later life market, it stated.

Equity release providers lend out substantial amounts over very long terms and the repayments generally only take place when the person dies or moves into care, requiring lenders to have long-term funding models.

The FCA has asked consumers, providers and advisers to give feedback on whether there are further intergenerational issues facing the mortgage market, whether the industry is currently meeting changing customer needs and if not, why not. 

Rachael Griffin, tax and financial planning expert at Quilter, said it the paper was a landmark moment in the debate around intergenerational wealth inequality. 

She said: "The FCA has marked the financial divide between millennials, baby boomers, and generation X as one of its key priorities and is now putting concerted effort into delivering on that priority.

"This is the first time in recent memory the authority has placed intergenerational issues front and centre of its plans and challenged the industry to do more on this issue.