Mortgages  

FCA warns on equity release advice after review

FCA warns on equity release advice after review

The Financial Conduct Authority has sounded alarm bells over unsuitable equity release advice after a review found some mortgage advisers were falling short in the market. 

The warning comes as the regulator said it would be carrying out a more detailed follow-up review of advice in the lifetime mortgage market as part of its ongoing supervision of mortgage intermediaries. 

In a review published today (June 17) the FCA said its work in the equity release market had uncovered mixed results, with some cases where lifetime mortgages were working well and unlocking equity for consumers who could not afford traditional mortgages.

But the watchdog also warned of "three significant areas of concern" where advice was not in the best interests of the consumer, including instances where advisers did not always take into account the personal circumstances of their clients. 

The FCA also found the reasons behind consumers looking at equity release were not always challenged by firms and advisers were not always able to evidence their recommendations were suitable. 

The review was undertaken by the regulator as part of its exploratory work on later life lending, considering the borrowing opportunities available to consumers aged 55 and over - some of whom may be more vulnerable.

Figures from the Equity Release Council found that homeowners accessed £1.06bn of property wealth through equity release in Q1 2020.

Jonathan Davidson, executive director of supervision for retail and authorisations at the FCA, said deciding to enter into a lifetime mortgage was a "big decision with a big financial impact" for consumers, but the suitability depended on personal circumstances.

Mr Davidson said: "It is therefore critical that advice offered to consumers looking at lifetime mortgages is suitable to their personal circumstances. It is clear from our review that advice being offered to such consumers, including some vulnerable consumers, is still not up to scratch.

"All firms offering these products should read our review and take action to make sure consumers are receiving advice tailored to their personal circumstances.

"We’ve continued to engage with firms where we had concerns and, as part of our ongoing supervision of mortgage intermediaries, we will be carrying out more detailed follow-up work into the suitability of advice in the lifetime mortgage market."

Source: FCA 

The FCA said: "Poor quality advice in this market is unacceptable and is likely to create significant harm for customers who may be vulnerable.

"Where we find breaches of our rules we will, in line with our general approach to supervision, take the necessary supervisory action."

The regulator said the coronavirus pandemic, and its pressure on consumer finances, had reinforced the importance of suitable advice in this market. 

A report last month from equity release adviser Key found that over-55s were borrowing lower sums with equity release, although the number of customers taking out a loan had increased.

rachel.mortimer@ft.com and chloe.cheung@ft.com