It is a year ago this month that the Financial Conduct Authority re-introduced the retirement interest-only mortgage (Rio).
This has been widely welcomed by most practitioners in the mortgage market irrespective of which side of the fence you operate from – provider or adviser.
After all, the facts speak for themselves; we have an ageing population time bomb and, like all industries, financial services needs to adapt to cater for changing consumer needs and attitudes.
However, anecdotal evidence suggests – and I have not seen any data published by UK Finance or any other body specifically relating to Rio sales – that the number of Rio applications have been well below expectations, probably no more than a few hundred over the past year.
There is no one obvious reason for this although the following are the primary reasons:
- Products have tended to be similar to residential mortgages without a fixed end of term but with higher interest rates. The majority of products have tended to be two to five-year fixed rates when the sweet spot is 10-year fixed terms, or indeed longer. Borrowers want certainty around monthly outgoings for as long a period as possible.
- Underwriting – examining pension illustrations and knowing how to interpret the detail is a new area for some lenders and the approach to gathering and evidencing income in retirement has been a little heavy handed in some circumstances, and less than joined-up in others.
- Training – advisers need help to understand what these products are best used for and how they sit alongside lifetime mortgages and other residential mortgages that, in many cases, offer a better interest rate and are generally more feature rich than a Rio.
- Regulation – the Financial Conduct Authority stated when it published its rules on Rios that advisers/brokers must advise the customer on whether a lifetime mortgage may better suit their needs.
It is point four that feels like the big sticking point, holding back many brokers and advisers from actively engaging in this sector.
I speak to many advice firms, some are already actively engaged in the later life lending market, while others are looking to get involved.
Many, certainly networks, get very nervous about their brokers or members advising on Rios if they do not understand and/or are not qualified to advise on lifetime mortgages.
I can see the conundrum but worry some advisers are left advising older borrowers on a narrow product range i.e. residential mortgages that allow borrowers to take a term beyond state pension age. These may not always provide the right customer outcomes.
It feels to me that we need the regulator to take a look at the MCOB rules for both lifetime mortgages and residential mortgages (including Rios) so that products and advice can be properly aligned and some of the barriers and confusion removed.
This will help significantly more advisers and brokers become actively engaged in all aspects of later life lending which must surely be what the regulator wants.
It surprises me that a year on from Rios, with new products seemingly entering the market almost weekly, that not only are the MCOB rules in need of an overhaul but also the accredited examinations need, at the very least, updating.
What have we learnt in the past year?
Lenders want to offer products, these are improving all the time and offering greater customer choice.
Equally advisers and brokers want to help clients looking for solutions in later life to obtain the best possible outcomes.
So far the regulator has issued the carnival tickets but it feels like they need to bring the music to the party.
Simon Little is managing director of Autumn Life Retirement Solutions