Demand for later life lending has grown in recent years. With the option of no monthly payments, equity release is an attractive option for some – allowing consumers to benefit from the stability of a long-term fixed interest rate and unlock wealth from the value of their home which may be their main or only asset.
The FCA’s review found equity release to be working well for many consumers.
But it highlighted three significant areas of concern which the FCA says increases the risk of harm to consumers:
- Advice given by firms did not always sufficiently take into account consumers’ personal circumstances;
- Consumers reasons for looking at equity release were not always challenged by firms;
- Firms weren’t always able to evidence that their advice was suitable.
Deciding to take out equity release is one of the most important and long-term financial decisions consumers make in later life. The consequences of their decision are likely to have a significant impact on their financial wellbeing for the rest of their lives and some of the costs can be less obvious but significant.
For example, the costs of compounding interest over a long period of time can make equity release an expensive way to meet a short term borrowing need, while the costs of ending these contracts or repaying early if personal circumstances change can also be significant.
In its review the FCA was concerned that the advice given to take out equity release products could not always be shown to be in the best interests of all consumers given their personal circumstances.
In light of coronavirus (Covid-19), which continues to have a significant financial impact on many consumers, it is more important than ever that advice on equity release is appropriate taking into account consumers’ individual circumstances.
The review was undertaken by the FCA as part of exploratory work on later life lending, where it considered the borrowing opportunities available to consumers aged 55 and over, some of whom may be more vulnerable.
The FCA’s Executive Director of Supervision, Retail and Authorisations, Jonathan Davidson, said:
“Deciding to enter into a lifetime mortgage is a big decision with a big financial impact for consumers. In many instances it makes sense but whether it does or not depends on personal circumstances and how they might change.
“It is therefore critical that advice offered to consumers looking at lifetime mortgages is suitable to their personal circumstances. It is clear from our review that advice being offered to such consumers, including some vulnerable consumers, is still not up to scratch.
“All firms offering these products should read our review and take action to make sure consumers are receiving advice tailored to their personal circumstances.
“We’ve continued to engage with firms where we had concerns and, as part of our ongoing supervision of Mortgage Intermediaries, we will be carrying out more detailed follow-up work into the suitability of advice in the lifetime mortgage market.
“If in doubt as to whether a lifetime mortgage makes sense for you as a consumer, you should explore your personal circumstance fully with your advisers or with independent sources such as the Money and Pensions Service.”