UK Finance says its members do not want later life lending to be “further carved out from the rest of the market,” instead arguing that many members “support it becoming more mainstream”.  

This comes in response to the Financial Conduct Authority’s mortgage rule review discussion paper, released last week.  

The regulator’s paper points out that around £2.6tn, of the UK’s £9.1tn housing stock, is owned by people over 65. 

It adds: “If older homeowners are able to access some of this wealth, they may be able to secure a more comfortable retirement.” 

But the regulator adds that there are “barriers” to later life lending. 

It says products tailored towards older borrowers, particularly lifetime mortgages and retirement interest-only home loans, “are generally more expensive than standard mortgages”.  

It asks why other funding models, apart from annuity funds, such as through deposits, “have not been taken up, especially where this could reduce costs”? 

The watchdog says it wants to make sure its “rules are not creating a barrier to innovation, and that firms feel confident when launching new offerings”. 

It points to two products that it says could provide good options for later life lenders. 

The first are equity release products that allow borrowers to draw down each month, rather than in a lump sum, which the regulator adds “could be a cost-effective option for those who don’t have a reliable income in retirement”. 

The body also points to “low-start mortgages” that could allow “potential long-term borrowers to reduce their initial payments without some of the risks of an extended term”. 

But the regulator adds: “Neither of these products is widely available.” 

UK Finance points out that one of the first blockers around later life lending options is the lack of customer awareness.   

The association says: “It is important for all customers to understand all the options available to them so that they can make an informed decision and achieve a good customer outcome.” 

Borrowers who wish to downsize, or rightsize, often find that the cost of moving outweighs the financial benefit of doing so.  

To tackle this, UK Finance suggests that the government could “incentivise last-time buyers who desire to move by creating a stamp duty exemption and avoiding future tax changes which could disincentivise them from moving”. 

When looking at product innovation in later life lending, members believe that considering if one borrower can afford the mortgage payments, when the other party dies, this can be a significant barrier to the effectiveness of retirement interest-only mortgages. 

They have asked the FCA to change the rule to allow “an existing customer who can demonstrate paying their interest-only mortgage payments, but is unable to repay the full outstanding balance at the end of the term, to switch to a retirement interest-only mortgage without needing to undertake the restrictive affordability assessment”.  

It says: “This could create a better outcome for a customer looking to stay in their home, rather than remaining in breach of their contract (once the term has expired and the balance remains due) and at risk of litigation and repossession.” 

Some other later life specialist members believe innovation is being hindered by the separation of ‘advising and selling standards’ and ‘equity release: advising and selling standard’.  

Innovative hybrid lifetime products have been created by several later life members, where the customer can choose to pay the interest or roll it up, however, they can only be advised on by equity release qualified advisers.  

By merging rules in line with Consumer Duty, and the minimum required level 3 qualifications, UK Finance says: “The FCA can break down silos that exist within the regulation, supporting innovative solutions and improving outcomes for later life borrowers.” 

UK Finance suggests holistic advice should be defined as those qualified to assess the mortgage needs of their customer, at any stage of their life, with the capability to recommend suitable solutions from all the options available. 

The association says: “Our members believe holistic mortgage advice to not be prevalent, which increases the risk of a customer not receiving a good outcome.” 

“Many of our members, particularly those operating in the later life market, would welcome an FCA review and consultation on the later life advice process, giving consideration to expanding the minimum mortgage qualification requirements to include equity release,” it adds. 

Meanwhile, Key Group chief risk and compliance officer Charlotte Allen warns later life borrowers are at risk of being “significantly underserved” in today’s market. 

Allen highlights silos in mortgage advice reinforced by regulation “need to evolve” to recognise the benefits of later life lending products and the good consumer outcomes they deliver. 

She also encourages property wealth to be included as standard in government-backed guidance services such as Pension Wise and Money Helper, and financial promotion and disclosure rules for regulated mortgages and equity release aimed at later life borrowers to be applied consistently by lenders and intermediaries. 

Key says regulatory change should focus on amending Mortgage Conduct of Business (MCOB) rules so that mortgage advice that considers all options for all later life customers is set as standard to improve awareness of and access to the full range of later life lending options. 

It wants to see specific regulatory guidance clarifying regulatory expectations for later life products and the Certificate in Regulated Equity Release (CeRER) required as part of the Certificate in Mortgage Advice and Practice (CeMAP) for all mortgage advisers, with continuing professional development courses also mandatory to keep up to date with the evolving landscape.  

Allen says: “Using housing wealth to support retirement will bring substantial benefits to individual consumers, society and the economy.” 

“But it must be considered in advance of a consumer reaching retirement age if it is to fully support them in effectively planning for an appropriate standard of living in later life.” 

“A lack of holistic mortgage advice for later life customers, alongside the absence of property wealth  being included in broader financial planning discussions, is holding back consumer access to suitable options, with customer outcomes at risk of being driven by products and adviser types rather than customer need, which discourages innovation in the sector by limiting return on investment.”