Lifetime mortgage lenders can apply for a rule waiver on affordability assessments for interest-charging lifetime mortgages that can convert to roll-up mortgages.
Later life firms will be able to ‘switch off’ affordability assessments when offering hybrid lifetime mortgages under a modification made by the Financial Conduct Authority today.
Lifetime mortgage providers can apply for a rule waiver on affordability assessments for interest-charging lifetime mortgages that can convert to roll-up mortgages.
The FCA said: “We have decided to make this modification available because we do not consider that an affordability assessment is required where there is no risk of arrears and repossession in the event of missed payments.”
Intermediaries can rely on the provider’s modification when arranging or advising on that provider’s lifetime mortgages.
Nigel Waterson, chairman of the Equity Release Council, said: “We are delighted that the FCA has decided to make a change to mortgage affordability rules when applied to lifetime mortgages. This has the potential to help more consumers make use of options already offered by equity release providers in later life and encourage further innovation within the market.
“We have been lobbying on the issue of affordability for lifetime mortgages for some time, and as part of our response to the FCA’s call for inputs at the end of 2015 and I am pleased that they have listened fully to our concerns. The optional payment of interest within a lifetime mortgage is different to that of a residential mortgage with the opportunity for consumers to switch to roll-up when they wish.
“This change highlights the growing recognition that equity release has an important part to play in the planning of funding for later life and we look forward to continuing to work with the FCA in the future.”
Paul Smee, director general of the Council of Mortgage Lenders, said: "This may look like a small change, but it is a really significant one that should allow the lifetime mortgage market to develop in a far more sensible and consumer-friendly way.
“It removes one barrier to the provision of sensible, safe and worthwhile lifetime mortgage products."
The relaxation of affordability rules comes after two landmark decisions from the Financial Ombudsman Service forcing lenders to extend interest-only terms indefinitely for retired borrowers.
In December 2015 FOS published two case studies of borrowers who had their complaints upheld because their lenders had given them an interest-only mortgage allowing the sale of the property as the intended repayment vehicle.
In one case the borrower took an interest-only mortgage on a 25-year term in his early 70s and complained that he thought he had a lifetime mortgage.
Now in his 80s he was worried he would be forced to sell his home in his late 90s when his term ran out.
FOS upheld the complaint and ordered the lender to change the mortgage to one with no set end date which would allow the capital to be repaid on the borrower’s death.
FOS also recommended the term of an interest-only mortgage be extended “indefinitely” and be repaid upon death for a widow in her 80s who complained after being told by her lender arrangements would have to be made to sell the house if she could not repay the capital at the end of her original term.
