The Mortgage Rule Review consultation paper on supporting first-time buyers and under-served consumers suggested removing the need to consider a sole borrower’s ability to afford a RIO mortgage on the death of the joint borrower.
The regulator said removing this guidance would allow lenders to be more flexible and lend based on their risk appetite.
It said the sale of RIOs remained low compared to lifetime mortgages, despite evident demand from older borrowers for mortgages. Lenders have also told the regulator that the guidance was too restrictive.
Removing the guidance would reduce the number of people taking out a lifetime mortgage and the number of borrowers taking a standard interest-only mortgage with a term that extends into later life, the FCA said. This will also remove any concerns about what to do when the loan matures, the regulator added.
It acknowledged that some lenders would worry that if they did not assess the ability of the surviving borrower to repay the mortgage, they would fall into financial difficulty and arrears. In this instance, the lender can consider the ability of the surviving borrower to continue making repayments and consider any future income, such as a spousal pension.
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Product sales data showed arrears in RIOs are “extremely low”, the FCA said, accounting for less than 1% of accounts.
Although figures from UK Finance showed a rise in RIO sales in Q1 this year, the number of loans was relatively small, at just 353.
