After a review revealed widespread problems with the way these products were sold, the UK’s top financial regulatory body has ordered lenders to change or withdraw more than 400 misleading promotional materials.
According to official statistics released in response to a recent Freedom of Information Request , lifetime mortgages, or later life mortgages, are the most popular method for homeowners to release equity from their property. Sales will jump 28 percent to £5.2bn by 2022.
The Financial Conduct Authority announced on Thursday that it had concluded that, “in many instances”, the sales of these products “didn’t meet the standards expected”, and that they “didn’t consider whether the products were appropriate to the individual circumstances of customers”.
The watchdog stated that it “required” those firms who fell short “to improve the quality of their advise”, and “the majority of firms included in the review changed how their advisors are rewarded”.
Equity release is a way for homeowners to borrow money from their home’s value while still living there. The loan will be repaid only if the homeowner dies or permanently moves into a nursing home.
The FCA stated that it had identified a number of bad practices. These included companies promoting the benefits of their product without a balanced description of risks, and encouraging sales at the expense of quality advice.
Natalie Bradley, partner of solicitors Stephensons said that her firm has seen persistent problems in later-life mortgages. She also noted that many aspects of these products can be overlooked by the borrowers. These include high repayments, and confusing terms and conditions.
She said that clients must understand the potential ties they can be tied to, including not being able to transfer their equity to another property at a future date.
In 2020, a previous FCA review warned that unsuitable advice could cause “major harm”, including not telling younger people about traditional mortgages which are cheaper and more flexible.
Sam Richardson is the deputy editor at consumer magazine Which? Money.
The FCA should take the regulation of the market very seriously. Firms that do not meet the standards set by the FCA will be subject to swift and harsh action.
The FCA consumer duty came into force at the end July. Under this law, banks and financial service companies must deliver “fair results” to their customers and provide documentation of how they did so.
According to the new regulations, lifetime mortgage advisers are required to disclose other options to their customers, take measures to avoid conflicts of interest, and evaluate the results of their equity release decision.
Jim Boyd is the chief executive of Equity Release Council, an industry trade group that represents the sector. He said the FCA should engage with providers of lifetime mortgages.
He said that the council and its members were working hard to improve customer communication and strengthen advice standards. “We fully support the new duty to consumers and will continue working with the regulator, our members and the wider industry to improve customer experience.”