In a review of later life mortgage firms, the Financial Conduct Authority (FCA) has worked with the largest firms to improve their advice processes and prompted the removal or amendment of almost 400 misleading promotions.
The review looked at firms responsible for around half of all lifetime mortgage sales and found in many cases advice did not meet the standards expected.
For example, a lack of evidence that sufficient consideration of consumer’s individual circumstances had been given and advice lacked discussion of alternatives.
The FCA required those later life lending firms which fell short to improve the quality of their advice.
The FCA is driving significant improvements in processes to ensure advice is personalised and shows consideration of customers’ circumstances.
The majority of firms in scope of the review also changed how their advisers were incentivised.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Releasing money tied up in your home later in life is a big decision and can have a financial impact on consumers and their families well into the future.
“Our review led to the largest later life mortgage firms making improvements to their sales and advice practices, and almost 400 promotions have been removed or amended where firms have identified issues with them.
“We expect all firms to assure themselves they comply with existing rules and guidance and higher standards under the consumer duty.”
Reaction:
Leon Diamond, CEO and founder, LiveMore:
“We wholeheartedly welcome the FCA’s report into the lifetime mortgage sector, which highlights practices in the industry that deserve the regulator’s attention.
“The effect of compound interest on a lifetime mortgage is significant, especially in a high interest rate environment, making this form of finance expensive if a mortgage is held for many years.
“So, if a standard mortgage is affordable, that is usually the best outcome for the customer and there is an easy way to find that out.
“We are firmly of the view that an affordability assessment should be undertaken, in all cases, before any decision is made about going down the route of a lifetime mortgage.
“A fundamental part of an advisor’s role is to fully understand the income and outgoings of customers.
“This provides a clear picture of whether they can afford monthly mortgage repayments and should be the first option to consider. If an interest-only or a capital and repayment mortgage is not affordable then a lifetime mortgage could be the second option.
“We published a white paper in June, Consumer Duty: why later life lending is about to change forever. It highlights why Consumer Duty is good for the industry and as a solutions-led lender, we abide by the rules and welcome them with open arms.
“Anything that improves the industry for the good of the consumer can only be a good thing and this report from the FCA is a strong reminder for every broker and lender to put the customer first.”
Jim Boyd, CEO of the Equity Release Council:
“We support the FCA’s engagement with the lifetime mortgage sector, which helps tens of thousands of customers each year to enjoy better standards of living.
“We share the regulator’s commitment to putting customers first and ensuring they are fully informed and advised about their options. Its findings will inform our ongoing standards-setting work to help raise and reinforce best practice consistently across the sector.
“Modern equity release helps people to enjoy financial freedom and a better quality of life. Carefully considering the option of releasing equity, alongside all alternatives, should be part of every homeowner’s retirement planning.
“The Council and our members are undertaking significant work to reinforce advice standards and ensure clear customer communications.
“We wholeheartedly support the new Consumer Duty and will continue to work with the regulator, members and wider industry to take every opportunity to improve customer experiences.”
Paul Glynn, CEO of Air:
“Any Financial Conduct Authority announcement which highlights perceived failings in an industry is never welcome news, but the FCA did note that all firms included in the review have already made changes to sales and advice processes to address these points.
“Our sector needs to build on this work and consider how we avoid the behaviours called out by the review if they are evident in a firm’s approach.
“Given the recent introduction of Consumer Duty legislation, advisers are already stepping up but robust compliance, clear documentation and a commitment to ongoing education and training need to be part of a firm’s DNA.
“Whether you choose to use resources or training from platforms such as Air or look directly to lenders for insights, there is a significant amount of resource available.
“Advisers who operate in the later life lending market understand their responsibility in helping older homeowners make the right choices, so we need to actively consider how we personalise, achieve, and document this.”
