Mortgage advisers must be prepared to consider the full range of later life lending products for clients aged 55 and over if they are to meet their obligations under the Financial Conduct Authority’s Consumer Duty, according to Key Advice.
The UK’s largest equity release adviser has called for a fundamental shift in the market as part of its response to the FCA’s Future of the Mortgage Market discussion paper, which closes to consultation on 19 September.
The regulator launched its review in June, warning that its rules may need to change to support more “holistic advice”. Key has argued that reforms should include a mandatory disclosure requirement for all advisers so that older borrowers are made aware of the scope of advice being provided, with clear signposting to where further guidance can be found if certain products are not being considered.
It said too many advisers – including some equity release specialists – are failing clients by not presenting the full spectrum of borrowing choices available to the over-55s. That, Key warned, is not consistent with delivering the “good customer outcomes” demanded by Consumer Duty.
FALLING SHORT
The FCA’s paper notes that mortgage products designed for older borrowers, such as lifetime mortgages and retirement interest-only (RIO) deals, have become increasingly mainstream. However, it cautions that the market risks falling short of the needs of future generations of borrowers.
Key stressed that recommendations for older clients should be based on need rather than product type. With circumstances likely to shift in later life – through changes in income, employment, health or lifestyle – tailored solutions can offer greater flexibility and resilience.
The firm pointed out that many customers nearing the end of a fixed term are simply rolled onto a similar product through a remortgage or product transfer, when more suitable later life lending products might be available. Options include RIO and term interest-only mortgages alongside lifetime mortgages offering flexible repayment structures.
Charlotte Allen, chief risk and compliance officer for Key Group, said: “There is a growing need for advisers in the mainstream mortgage market to rethink their approach and the introduction of a mandatory disclosure requirement, for both advisers and lenders dealing with customers over the age of 55, would accelerate that change.
“The FCA should take the lead to ensure that advisers are engaging with older clients and researching a broader range of later life lending products alongside mainstream options – in the same way that equity release specialists should not default to lifetime mortgages without fully exploring affordability and the other products that may be available.
“There is a huge opportunity for mortgage advisers to grow their businesses and improve their customers’ lives by considering the full range of later life lending options with their older customers and ensuring they stay abreast of all the product innovation taking place. This can be achieved by expanding their own scope of advice or working with trusted referral partners.”
She also highlighted the wider societal context, noting that 38% of working-age people are projected to undersave for retirement, while the over-55s collectively hold £3.7 trillion in property wealth. Ensuring access to holistic advice, she said, will be critical in helping people achieve their financial goals in later life.
