Due to their distinct nature, whereby they typically roll-up interest rather than asking borrowers to pay this back monthly, Lifetime Mortgages fall outside the MCD.
In the CP14/20 consultation paper released today the FCA said: “We think its appropriate to apply this exemption, but to do so we need to amend the current handbook definition of a lifetime mortgage as it differs slightly from the approach in the MCD …”.
The new definition removes any link with the age of the target market for the product and, following the MCD’s lead, will remove ‘beyond doubt’ that equity release loans requiring regular repayments of capital are not
lifetime mortgages.
But the FCA said this raises questions for so called ‘hybrid mortgages’ which are Lifetime Mortgages where some element of the mortgage allows borrowers to make payment.
The regulator is discussing the issue with the Equity Release Council and will publish a statement on the outcome.
Alice Watson, product and communications manager, Stonehaven, said: “The changes outlined in the MCD consultation herald another stage of evolution for equity release, promising once again to bring the products much closer to the mainstream mortgage market.
“Lifetime mortgages are already highly regulated products which must be bought with financial advice, so they already offer a high degree consumer protection, and some of the ideas in the consultation are included in standard lending practices.”
Watson said Stonehaven will work with the industry to review the FCA’s suggestion on how to treat ‘hybrid mortgages’ under the MCD to safeguard the best interests of customers and advisers.
New Lifetime Mortgage definition
The definition in the FCA’s handbook will now state that a Lifetime Mortgage is where a lender; contributes a lump sum, periodic payments or other forms of credit disbursement in return for a sum deriving from the future sale of residential immovable property or a right relating to residential immovable property.
The lender will not seek repayment of the credit (unless the borrower breaches the contract including any obligation to repay interest) until the occurrence of one or more of the following;
– the death of the customer
– the customer leaves the property to live elsewhere and has no reasonable prospect of returning (for example by moving into residential care)
– the customer acquires another property for use as his main residence
– the mortaged property is sold or repossessed
ESIS exclusion
While the FCA is keen to stress that any provider of a regulated mortage contract, which is exempt from the MCD, can voluntarilty decide to comply with the legislation, provders of Lifetime Mortgage cannot use the European Standardised Information sheet (ESIS).
ESIS is the MCD disclosure document which will replace the Key Facts Illustration for mortgage contracts captured by the MCD.
The FCA said: “We consider a disclosure document designed with lifetime mortgages in mind better serves consumers.”
The consultation closes on 29 December.
Anyone wishing to take part in the consulation can complete the FCA’s form or write to Terence Denness, policy, risk and research Division, Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.
