FCA proposals highlight need for holistic advice in later life lending, says Key
Responding to the FCA’s CP28/18 consultation, Key described proposals to improve access to later life lending products as positive and pragmatic.
Key Equity Release has described Financial Conduct Authority (FCA) proposals to improve access to later life lending products as positive and pragmatic, but said the sequencing of changes needs careful consideration.
The consultation paper CP28/18, open until July 28th, sets out plans to remove the surviving spouse affordability test on retirement interest only mortgages and includes measures to support first-time buyers (FTBs) and the self-employed.
Key Equity Release said the changes to affordability requirements on retirement interest-only mortgages (RIOs) would open up more options for advisers and borrowers but emphasised that the regulator should focus on the low uptake of RIOs and lifetime mortgages.
In 2025, sales of RIOs to over-55s borrowers totalled 3,002, while lifetime mortgages reached 26,974.
By comparison, mainstream repayment mortgages were nearly 300,000 and interest-only mortgages nearly 65,000.
Key Equity Release urged all participants in the later life lending sector to work with their trade bodies to provide feedback to the FCA.
Will Hale, CEO at Key Equity Release, said: “Ensuring that all older customers get to the right outcome requires all later life lending options to be considered and this is where holistic advice is vital.
“RIOs and lifetime mortgages currently make up just 8% of residential mortgage sales to the over 55s.
“This cannot be right given the features and benefits offered by these products and our understanding of the wants and needs of older customers.”
Hale added: “The product outcome a customer receives remains a lottery based on where they happen to enter the advice ecosystem.
“It is these distribution challenges that the FCA need to address.
“Innovation in the lifetime mortgages space now sees products that allow interest to be served in full, in part or not at all.”
He said: “Lifetime mortgages offering a fixed rate for life come with embedded protections that are not available with RIOs or mainstream mortgages such as certainty of tenure and a no negative equity guarantee.
“Assessed side by side with other later life lending products as part of a comprehensive advice process, modern lifetime mortgages, perhaps with interest payments being made to limit equity erosion, can deliver the most suitable outcome in many situations.
“RIOs and mainstream mortgages may offer a lower cost of borrowing but this should be just one consideration in the advice process and eligibility on the basis of affordability shouldn’t be confused for suitability when there are alternative options available.”
He added: “Where the proposed RIO changes under CP 26/18 should make a significant difference is for those customers whose age and borrowing requirement puts them beyond lifetime mortgage LTV constraints.
“Therefore, this is a positive move from the FCA as long as it is accompanied by a commitment to ensure that all products are considered for all customers over the age of 55.
“It is very welcome that in this consultation paper the FCA again acknowledges that many are under-saving for retirement and that housing wealth needs to play a central role in supporting people’s financial goals in later life.”
He said: “Furthermore, by outlining how follow-on products from interest-only mortgages such as RIOs and lifetime mortgages might be considered credible repayment strategies, the regulator is expressing an acceptance that people will need to borrow into later life and that paying-off mortgage debt is not a realistic, or indeed optimal, objective for many.”
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