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Retirement interest-only: There is more work to do to ensure retirees access good advice – Ellis

by: Steven Ellis, chief executive of Legal & General Home Finance
  • 20/08/2018
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Retirement interest-only: There is more work to do to ensure retirees access good advice – Ellis
The Financial Conduct Authority (FCA)’s reclassification of Retirement Interest-Only (RIO) mortgages means these products will now be regulated with standard mortgages, rather than as part of the equity release market.


That has led a few specialist lenders and advisers to warn that older borrowers could end up with the wrong products and that a mis-selling scandal may be looming.

This seems unduly pessimistic though. In theory, the FCA change means that RIO mortgages can be sold without advice.

But “in practice,” the FCA notes, “most retirement interest-only mortgages will be sold with advice as our standard mortgage rules require this.”

The risk of repossession (which does not factor in the case of lifetime mortgages), meanwhile, is mitigated by rules on both responsible lending and treating customers fairly if they’re experiencing payment difficulties.

The concerns therefore appear to be mainly about the quality of advice retirees are likely to receive.


A good start

The desire that older borrowers receive the best advice possible on all available lending options is to be applauded.

As the population ages and large numbers of interest-only mortgages approach maturity without funds in place for repayment, later-life lending is going to become more important.

Seven out of 10 interest-only and part capital repayment mortgages are held by customers aged over 45.

But that’s precisely why we should welcome the FCA’s decision, which is designed in part to help tackle both these issues.


Prolonged polarisation

Legal & General has long believed the polarisation of the lifetime mortgage and mainstream markets is not the best outcome for consumers.

Older borrowers need advice on the full range of options for retirement planning, not just the standard residential options or lifetime mortgages.

People’s homes are often their largest asset and housing equity needs to be considered as part of retirement planning.

The sector as a whole needs to make a solid commitment to work to remove the siloed approach that we’ve become accustomed to.

RIO provides an excellent opportunity to start bridging the gap, but we need to remove the us and them mentality that still exists.


Time to come together

It is true there is more work to do to ensure retirees access good advice that covers all the options. To ensure RIO products are distributed responsibly, lenders and advisers on both sides of the market need to work together, sharing best practice to deliver good outcomes for customers.

We also need to broaden and deepen adviser expertise on the full range of options to promote greater choice and informed decisions among customers.

That means encouraging more mortgage brokers to enter this growing market and to include both RIO and lifetime mortgages in the retirement discussion with their clients.

RIO is a positive move – it’s in the interest of consumers and it provides greater choice.

We shouldn’t see this as a threat to the lifetime mortgage market, but as an opportunity that marks the first steps towards building a mortgage market that offers real choice and flexibility and meets the later life lending needs of Britain’s retirees.



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