The Financial Conduct Authority’s (FCA) new Consumer Duty is ‘likely to kill off Gilt-linked Early Repayment Charges (ERCs) for good and boost switching’, according to Steve Wilkie of Responsible Life.
Wilkie, executive chairman of the lifetime mortgage broker, said today’s announcement from the regulator could provide massive opportunities for brokers.
He said: “The new Consumer Duty is a really valuable intervention for the equity release market because it’s likely to kill off Gilt-linked Early Repayment Charges (ERCs) for good and boost switching.
“Gilt-linked (ERCs) have always been a bone of contention because of their complexity. How many older relatives would you really expect to grasp the significance and potential consequences of a variable ERC linked to the yield on 10-year government bonds?
“They were designed with the lender in mind, not the consumer, and we’ve never been in favour of them.
“Some lifetime products still have Gilt-linked ERCs but their numbers have been dropping.
“They’re not consumer friendly and one of the big wins for the FCA Consumer Duty could well turn out to be the final demise of this way of pricing redemption penalties, which would understandably bamboozle many customers.
“The issue of switching has also become a massive opportunity for lifetime mortgage holders over the past decade.
“Interest rates on loans dropped so steeply, many of them could suddenly save tens of thousands of pounds by rebroking. While many brokers are already on the front foot in encouraging borrowers to consider switching, not all brokers are being proactive enough.
“The Consumer Duty will lead to a renewed focus on switching across the board and ensure that those who could benefit from switching are alerted in a timely manner, no matter which broker they used.”
