The Equity Release Council has urged the Financial Conduct Authority to relax its mortgage affordability rules to encourage equity release customers to pay interest.
The Equity Release Council has urged the Financial Conduct Authority to relax its mortgage affordability rules to encourage equity release customers to pay interest.
As it stands providers must assess customers’ affordability to pay interest for a period on lifetime mortgage contracts before moving onto a rollup arrangement.
The ERC said this shouldn’t be the case because interest payments are always optional and customers cannot lose their homes from not being able to pay interest because of the ‘no negative equity guarantee’ built into products.
If the rules were relaxed the council added that providers would be able to expand their product range and it would encourage new entrants.
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.”
The request from the council followed the FCA’s Call for Inputs on competition in the mortgage market.
The council also recommended 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 told the FCA to collaborate with the Prudential Regulatory Authority on how equity release is funded and whether a broader approach could be taken to enable alternative sources of funding to be accessed.
Andrea Rozario, chief corporate officer at Bower Retirement Services said: “Nearly half of advisers (46%) questioned by Bower say offering more retirement lending solutions would help maintain the strong growth in the equity release market but it is about more than that.
“There is demand from retired homeowners who are creditworthy but are being excluded by current affordability rules. The past few years have seen the pace of innovation pick up but advisers want to see more products and specifically ones which address the interest only issue and enable mortgage customers to move seamlessly into equity release or other solutions where suitable.”
