Over the years many mortgage products have been called the “next big mis-selling scandal” without too many actually coming to fruition.
However, this PPI deadline not only provides consumers with a date to act by, but also those firms who have made significant profits hunting down the institutions that purportedly mis-sold the insurance.
And the mortgage market might well seem ripe for the picking in certain areas.
We’ve already heard that these firms are training their sights on interest-only mortgages.
Typically, they attempt to suggest the client either was not aware they had taken out such a product, or they were not told they needed a repayment vehicle to run alongside the mortgage in order to actually pay off the capital at the end of the term.
The old adage of ‘if it’s not written down, it doesn’t exist’ will surely be tested again in such cases, especially those that claim the adviser did not make the client fully aware of their responsibilities when it came to pay off the capital.
However we might anticipate that all advisers will have covered their backs sufficiently on this one.
What makes this prospective pursuit of advisers regarding interest-only even more interesting is the introduction of retirement interest-only (RIO) products into the later life lending space.
Let’s firstly applaud the introduction of RIOs.
Our view is that this is proper innovation in terms of product and criteria design, especially when you consider that the advisory profession has only really seen innovation in terms of online distribution of our services recently.
So, to have these hybrid products which straddle the space between standard and lifetime mortgages is very welcome, particularly considering how the later-life lending market has been traditionally under-served.
Recent reports suggest this is an area of the market where business is likely to treble over the next few years, and RIO products might well act as a neat stepping stone for those mortgage advisers who have not yet looked at the later life space, but want to get involved.
But, and this is a very big but, given what we know not just about the needs of customers in the later life market and also what we’ve been hearing with regards to the work of CMCs, advisers are going to need to tread very carefully if they’re not to end up as the CMCs’ next big meal ticket.
Real and future danger
The potential for problems and claims might be even greater with these products given that older consumers are often perceived as vulnerable.
Furthermore, unlike equity release, there is no extra consumer-protection-led provision in the RIO space, such as the need to include family in discussions, independent legal advice, the benefits consideration, and everything else that equity release advisers must cover off.
We feel there is a significant market opportunity here but also a real and future danger specifically with this client base especially if you are inexperienced in this space.
If not carried out correctly, the wrong advice could have a drastically negative impact.
Advisers therefore contemplating a move into later-life lending advice should be acutely aware of what they are getting themselves into.
There is the potential for claims down the line from either clients or family members who might feel they got the wrong advice and product, mostly because the adviser was only able to advise on one product option, not the lot.
Danger lies therein, and we’re sure the CMCs would take a major interest in such cases. You have been warned.