The government’s ongoing focus on growing the economy has led it down the path to various industry regulators, not least our own FCA, with the request to look at its existing rules to see whether they are holding back activity in any way, shape, or form.
A lot of immediate focus from that missive has been on whether the FCA might seek to offer greater flexibility to mortgage lenders around the amount of business they can write above 4.5 times income, specifically the benefits this might deliver to first-time buyers.
However, the latest letter to the Treasury from the chief executive of the FCA, Nikhil Rathi, presents a number of other interesting potential routes the regulator is clearly considering, which don’t just have potential ramifications for those at the start of their borrowing journey, but specifically those who are taking borrowing into later life.
PUBLIC DISCUSSION
Indeed, ‘lending into later life’ is specifically mentioned in the letter as one area which will be up for a ‘public discussion’ in June, with other notable mentions including ‘risk appetite and responsible risk-taking’, ‘alternative affordability, testing and product innovation’, and ‘consumer information needs’.
It will be obvious to all that each area it intends to be up for public discussion are just as relevant to later life lending and borrowers as they are to other consumer cohorts.
Plus there is a specific consultation planned for May which is going to review whether the regulator could be making it easier for borrowers to remortgage with a new lender; reduce their overall cost of borrowing through term reductions and discuss their options with a firm outside a regulated advice process.
LIFE LENDING SOLUTIONS
Removing the last point – which seems an odd one given the importance consumers place upon advice and the protections it affords them – all the points raised in this letter are going to be particularly important for those borrowers who are either in, or moving into, a point in their lives when they can not only secure access to mainstream and specialist mortgage options, but also specific later life lending solutions.
Indeed, we might all argue quite vociferously, that the later life lending sector has done more than most to combine the elements of what the FCA appear to be looking for here in pursuit of better consumer outcomes for older borrowers.
CENTRAL FOCUS
The focus on affordability, for instance, which should now be a central focal point of the advice process for borrowers who can access later life lending options; looking at whether borrowers can pay all, or some, of the interest on a lifetime mortgage.
Or the benefits this delivers in terms of potential discounted rates, plus of course some of the ‘base’ attributes that come with these products including tenure for life, access to the equity for their own purposes, no negative equity guarantee, etc.
Innovation has also been a key area pursued by later life lenders like ourselves in recent years, and we are not going to stop in that pursuit.
TAILORED OPTIONS
Most recently, we launched our Tailored Interest Reward lifetime mortgage, offering both lump sum and drawdown options, with the borrower able to tailor their monthly interest payment and term to their circumstances, and where we offer interest rate discounts with the freedom of no fixed term.
To receive these discounts the borrower need only pay just over a quarter of their monthly interest, with a sliding scale on offer, they then benefit from their rate discount for as long as they continue to make their agreed payments.
Again, it’s a further example of the later life lending sector marrying up client affordability with wants and needs.
BESPOKE
It’s delivering a new set of products which provide options for the over-55 borrower cohort rather than simply moving them onto a mainstream mortgage product transfer, or a remortgaging to another lender, when they require a more bespoke and specific mortgage.
If the regulator is serious about considering ‘the future of the mortgage market – what it needs to deliver for different consumers at different stages in their lives’ and, importantly, the role of regulation in this, then it could start with ensuring that all those who are eligible, have access to all the products available to them.
CHANGE REQUIRED
At the moment, the disconnect in our rules means, for example, that advisers do not need to offer all these options, and it seems clear that consumers are not being serviced properly if they can’t secure access through the advice profession.
That has to change, and we need to broaden the scope, so to speak, so that a consideration of needs is constant and consistent with the wider array of products now available.
“There appears to be a recognition that the current rules might not be facilitating the best outcomes for later life borrowers.”
The fact that later life lending, affordability, consumer protection, product innovation, responsible risk-taking, etc, are all mentioned in this letter should be taken as a positive.
There appears to be a recognition that the current rules might not be facilitating the best outcomes for later life borrowers, and that changes are likely to be required in order to make this happen.
We’ll certainly be feeding into these consultations and discussions in order to highlight where amendments and a different focus can allow us to, firstly, get these products in front of the right customers, and secondly, to ensure they have the most suitable and best outcome for them based on what is available now, not simply what has been available in the past.
