The Financial Conduct Authority (FCA) has been urged by the Equity Release Council to consider whether a relaxation of mortgage affordability rules could help more lifetime mortgage customers take up the option to make interest repayments initially before switching to a roll-up arrangement.
Amendments to the Mortgage Conduct of Business (MCOB) rules following the Mortgage Market Review (MMR) mean that lifetime mortgage contracts which permit, but do not require, consumers to pay interest for a period are subject to the requirement of providers to assess their affordability.
The Council says this is despite the fact that payments of interest are always optional and that customers will never be at risk of losing their home as a result of being unable to continue with interest payments.
As a result, some customers who would have taken out a lifetime mortgage giving them the option to repay interest for as long as they wished might not now pass affordability assessments, may be reluctant to subject themselves to the assessment process or be recommended alternative products, the Council argues.
The Council has asked the FCA to consider whether a relaxation of rules originally designed for residential rather than lifetime mortgages would help more consumers unlock their housing wealth while protecting a larger amount of equity in their property. A relaxation might also support existing providers’ ability to expand their product range and encourage new entrants.
The request from the Council formed part of its evidence submission to the FCA’s Call for Inputs on competition in the mortgage market. The FCA is set to outline next steps in the form of a summary statement in the first quarter of 2016.
The Council’s submission included a separate request for the FCA and Government to consider the long-term impacts of decisions relating to tax and regulation which may affect equity release lending.
It also recommended that the FCA engages with the Prudential Regulatory Authority (PRA) to consider how equity release is currently funded, the extent to which current prudential requirements create barriers for firms and whether a broader approach could be taken which would enable alternative sources of funding to be accessed.
Nigel Waterson, chairman of the Equity Release Council, said: “We welcome the proactive decision by the FCA to review whether there are any barriers to competition in the mortgage sector. Retirement lending is a crucial part of this and there needs to be careful consideration of the factors which differentiate ‘residential’ and ‘lifetime’ borrowing.
“As part of our wide-ranging input we highlighted that revisiting affordability rules may help more consumers to make use of options already offered by equity release providers in later life, as well as encouraging more new entrants to the market.
“There is a growing recognition that equity release has an important part to play in the planning of funding for later life, and we look forward to working together with the FCA on the back of its findings.”
