Reintroduction of retirement interest-only mortgages "far from ready": ERC

7th December 2017
"The development of any retirement interest-only mortgage product must ensure consumers are protected and not at increased risk of mis-selling or repossession."

A recent FCA consultation paper set out plans to reintroduce retirement interest-only mortgages, however the Equity Release Council’s new Chairman believes the proposals are "far from implementation ready".

Retirement interest-only mortgages were redefined as lifetime mortgages after the implementation of MCD.

The FCA says it "has identified a regulatory barrier to a form of mortgage lending that could meet the needs of some older borrowers", including those with maturing interest-only mortgages and no repayment vehicle, and those seeking to release equity from their homes without the cost of interest roll-up.

The Equity Release Council says it welcomes the FCA’s proposal to provide greater choice of flexible products but does see it as a ‘work in progress’.

David Burrowes, the new Chairman of the Equity Release Council, commented: "The FCA's consideration of retirement interest-only mortgages is one of the big issues in my in-tray. The Equity Release Council has and always will have consumer protection front and centre of its work and so have a significant interest and concern about this product."

“We support efforts to provide a greater choice of flexible product options that are in the best interest of older consumers and welcome the fact the FCA is actively considering the issue of interest-only mortgages reaching maturity, as many consumers will require solutions to repay debts. However, as the market grows it is of the upmost importance to ensure that safeguards are in place, that consumers are protected and are offered the necessary advice.

“The development of any retirement interest-only mortgage product must ensure consumers are protected and not at increased risk of mis-selling or repossession. Without advice there is also a risk of potential longevity issues as customers do not consider the full financial implications of later years.

“We consider this proposal to be far from implementation ready and would welcome FCA workshops dedicated to detailed policy discussion. We would also like to see the development of ‘What-if?’ scenarios to test the feasibility of retirement interest-only mortgages, particularly in relation to future affordability as circumstances change. This will establish whether the proposed product structure will indeed help meet the policy challenge it is intended to resolve.

“Given the potential risks associated with retirement interest-only mortgages it is important for the regulators to work alongside industry and political stakeholders to ensure the best possible outcomes for consumers planning financially for later life.”

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