Unfortunately, this is not always the case, as the FCA’s report uncovered when it looked at around half of lifetime products sold over the review period.
The results are disappointing and there appears to be little progress since the regulator’s previous review, published in June 2020, as the same issues persist.
Three years ago, the FCA found three significant areas of concern about the suitability of advice provided, which could increase the risk of harm to consumers.
- Insufficient personalisation of advice
- Insufficient challenging of customer assumptions
- Lack of evidence to support the suitability of advice.
Affordability assessment is vital
The latest FCA review found similar concerns including consumer’s individual circumstances not always being sufficiently considered and a variety of solutions not always being discussed.
Lifetime mortgages can be the right solution but not in all cases.
Advisers need to look at the whole situation by undertaking an affordability assessment, in every single case, before any decision is made. A fundamental part of an adviser’s role is to fully understand the income and outgoings of customers.
The effect of compound interest on a lifetime mortgage is also significant, especially in a high interest rate environment, making this form of finance expensive if the product is held for many years.
If a standard mortgage is affordable, that is often the best outcome.
Considering vulnerable customers
Of wider significance in this latest review, and a key element of the Consumer Duty, is vulnerable customers.
Recent research we carried out found that 32 per cent of people aged 50 to 79 consider themselves to be vulnerable, with money and health as the main issues.
Almost half of respondents (47 per cent) felt vulnerable because they had little or no savings, while 35 per cent said it was due to the burden of bills and credit commitments. This has been exacerbated by the cost-of living crisis.
Poor health is an issue for 37 per cent of people, while 32 per cent had mental health issues and 23 per cent had a physical disability.
As part of the Consumer Duty it is important to recognise vulnerability and the FCA’s review reminds us that older people can often be more vulnerable.
Marketing must be appropriate
The FCA’s latest review also found 400 misleading promotions which had to be either removed or amended.
That is a worryingly high number and, if the advertising is inaccurate or misleading, what does that say about the advice that follows?
Adverts typically highlight the product benefits but the regulator was concerned that there was no balancing description of the risks.
The marketing of later life products should be targeted and appropriate to the audience but we do see a scattergun approach, such as advertising to everyone.
Mark-to-market early repayment charges (ERC) on lifetime mortgages were not mentioned in the FCA’s review but we believe this practice should be removed.
Borrowers should know what the ERCs are from the point of sale but mark-to-market ERCs are calculated on market conditions when the mortgage is redeemed.
This seems to fly in the face of Consumer Duty principles as customers should be made aware of any fees and what they are upfront.
We published the white paper, Consumer Duty: why later life lending is about to change forever, in June.
It highlights why the Consumer Duty is good for the industry and we are fully supportive of every broker and lender putting the customer first.
The regulator will continue to monitor the lifetime market so we must all take note of its warning: “Lifetime mortgage advisers must pay close attention to the review’s findings and act immediately where they need to.”