Financial Conduct Authority  

Ex-policy manager criticises FCA later life lending approach

Ex-policy manager criticises FCA later life lending approach

A former Financial Conduct Authority policy manager has criticised the varying ways the regulator has approached later life lending in the mortgage market.

Speaking at a National Later Life Adviser Conference, Lynda Blackwell said the regulator needed to review its "silo approach" to later life lending, making particular reference to the placement of retirement interest-only mortgages.

Currently, Rios are placed within the regulator’s mainstream mortgage rules, meaning advice is not required when setting up a Rio and the borrower only has to prove they can afford the interest payments.

This has been the case since March 2018, when the FCA moved Rios from the lifetime mortgages sector — where it had been lumped in with equity release — to a standard mortgage in an effort to increase the uptake of Rios in the market.

But Ms Blackwell, an industry consultant and former FCA mortgage policy manager, said the move had created a "disconnect" between the rules around Rio sales and advice compared to the "thorough and comprehensive set of rules" required for equity release when speaking at the conference on June 25.

The FCA currently requires advice to be involved in any equity release sale and advisers need to gain an extra qualification in order to do so.

The Equity Release Council, of which many equity release advisers are members, also requires there to be independent legal advice in the equity release process.

Ms Blackwell thought Rios required a similar level of advice and support as equity release and said the regulator was causing problems with its approach.

She said: "The Rio situation really brought this home to me, especially given there is the same need for advice and support with a Rio as there is with equity release. But it brought a residential approach to the rules [for Rio]."

Ms Blackwell said the FCA’s approach to Rios was founded on it being designed to "help the big banks with a problem it had" — how it helped customers coming to the end of interest-only mortgage deals — and that the FCA had been lobbied very hard by big banks to adopt such an approach.

At the start of 2018 the FCA reported nearly one in five mortgage customers had an interest-only mortgage and stressed it was concerned that shortfalls in repayment plans could lead to people losing their homes.

According to UK Finance, there are about 1.7m interest-only mortgages totalling about £250bn outstanding in the UK with about 200,000 policies due to mature by 2020.

However Ms Blackwell argued the FCA’s approach was "cooking up a problem" in the gap that exists between Rio and equity release products and urged the regulator to "think about this again". 

Stuart Wilson, chief executive of Answers in Retirement Group agreed the industry had to make its voice known to the regulator and argue against the ‘silo approach’.

Will Hale, chief executive at Key Advice, said: "[The FCA] hasn’t truly embraced the changes in the industry around product design and flexibility, and therefore we need to educate the regulator on this, but also that advice is aligned to bring about the best results for the customer."