The Financial Conduct Authority (FCA) first reported on exploratory work, specifically into the lifetime mortgage market, in June 2020, revealing in many cases the market was working well, but that some firms had advice quality issues to address.
Key issues identified by the regulator included insufficient personalisation of advice, a failure to challenge customer assumptions and a lack of evidence to support the suitability of that advice.
From here, sector participants and stakeholders began a quality drive, taking in all parts of the advice process. This included promotions and customer communications, and ensuring vulnerable customers receive full care and support.
Moving forward, it’s more than a year since the regulator’s further review of later life mortgage firms in September 2023 and, just recently, lifetime mortgage providers received a ‘Dear CEO…’ letter that highlighted some areas to focus on, particularly in terms of Consumer Duty, vulnerability and financial or operational resilience.
However, it’s clear from the regulator’s appraisal that the sector continues to work soundly with no systemic issues. And yet we remain in the regulatory crosshairs.
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It therefore feels like the right time to ask the FCA to turn its attention to what will help and support the sector because we might feel that we have lived up to the challenges set to us.
For example, we continue to see a raft of industry firsts in new lending criteria and more hybrid lifetime products with far more mainstream adviser appeal targeting fair value and good customer outcomes.
Lenders and providers in the later life lending space have been specifically charged with providing such products, and we have risen to the challenge; pushing the boundaries of what was previously achievable.
Consult on and rework the regulatory framework
But for the later life lending market to fulfil its promise, we need to see the same root and branch reformist zeal coming from the regulator to remove the ongoing barriers to holistic advice for the consumer.
The starter gun to solve the issue of how to engage with older homeowners and support their journey with access to home equity and mortgage debt through later life went off many years ago, yet bizarrely Consumer Duty and the regulatory process and system we have continue to work at cross purposes.
This presents a clear number of questions and issues for the regulator to address. Firstly, instead of continuing to flagellate a fully functioning, safe, advice-driven lifetime mortgage market for perceived shortcomings, the FCA must reverse the situation whereby advisers can, quite legitimately, not offer the full range of later life lending products because they don’t have the authorisations/qualifications necessary.
Why is it that mainstream advisers, who we need to encourage to offer holistic later life lending advice from all those products available, either can’t or won’t access the full range of later life lending products?
Certainly, we need all those active in the mainstream – whether adviser or lender – to be, as a minimum, signposting the other options that exist for older borrowers. Firms such as Mortgage Advice Bureau (MAB) have already said they will do this, and others are likely to follow.
Networks, and many others, continue to cite greater compliance risk, lack of permissions, or even high professional indemnity (PI) costs as barriers to this business, but the truth is the tools to be able to carry out such business activity are already in place from lenders like ourselves or service providers such as Air, with ample opportunity to put in place a referral partnership and mechanism with later life lending experts, if they do not wish to offer the advice themselves.
Also, the big banks that dominate in mainstream areas such as product transfers (PTs) also need to wake up to their own failures to honour a duty of care to customers.
Instead of simply rolling over-50s borrowers onto mortgages that might not be suitable for their needs, the industry needs to be able to examine all the options now available to this customer demographic, rather than just opting for a default PT because it is ‘convenient’.
The call to arms
The current regulatory picture also has to shift to match the changing nature of the later life lending market. This is a change that the FCA has pushed for to match the needs of the increasing number of borrowers who qualify for these products.
Many may still be unfamiliar with the speed of product change in this sector.
Hybrid products, affordability-focused lifetime mortgages, and more traditional lifetime products are all available now. And to chime with Consumer Duty, clients should feel their circumstances are being reviewed against all products by advisers, not just the limited tranche the adviser currently has authorisation to offer.
The FCA has supervised and (re)shaped this market. Now it’s time to help it reach maturity and fulfil its promise, while advisers need to put in place the right mechanisms to marry up all the sectors that consumers, the shifting needs of borrowers, and the increased range of product options increasingly demand.
