In an occasional paper, Access to Financial Services in the UK, the City regulator highlighted that consumers applying for mortgages later in life were more likely to be turned down for a mortgage ‘without a clear reason as to why’.
One option for the swathe of interest-only borrowers approaching the end of their term could be the ability to change their loan into a lifetime mortgage with interest rolling-up. These ‘hybrid’ deals would allow the interest to be repaid along with the capital when the borrower dies or moves into care, the FCA said.
“Ultimately, mortgages could even be designed from the outset to have this type of built-in flexibility, allowing housing wealth to build up and then be drawn down as an individual moves through different life-stages and events,” the report added.
However, the FCA said it was mindful that there were barriers to this type of innovation, due to the differing conduct of business rules for traditional and lifetime mortgages.
In April, the FCA went some way in amending affordability rules for lifetime mortgages, temporarily removing the requirement for firms to carry out an assessment on deals that allow the consumer to exercise the option to convert to an interest roll-up. A consultation on the appropriate amendments for MCOB rules on hybrid lifetime mortgages will be published by the FCA in due course.
In its report, the FCA also set out the following features of a mortgage which it believes are likely to facilitate a good consumer outcome:
- Protecting customers from taking on unaffordable or unsustainable debt
- Having a range of viable options to suit different situations, including remortgaging, downsizing and equity release
- Clear explanations if turned down and signposting to other lenders or options
- Access to holistic guidance and advice that considers borrowing in the context of other circumstances and goals, such as pensions, possible future care needs and inheritance
- Access for consumers (and their carers) to trusted help to manage financial matters if mental capacity fails.
