The Financial Conduct Authority (FCA) published its consultation paper on the proposed changes to the mortgage market under the direction of the EU Mortgage Credit Directive (MCD), which focussed on niche lending areas in the industry.
Lifetime mortgages will be exempt from the MCD but to remain so, the definition must be changed to make it EU compliant, a move which Geoff Charles, chief executive of Bower Equity Release said should be tackled with ‘extreme caution’.
The FCA is proposing to remove any reference to the age of the target borrower and stipulate ‘beyond doubt’ that any product which requires regular repayments of capital cannot be regarded as a lifetime product.
In an analysis of the effects of the MCD for Mortgage Solutions, Charles said: “However, excluding hybrids from being lifetime mortgages would mean that advisers with no equity release qualifications could advise on such products and they would not come under the SHIP standards.
“…we would advise that extreme caution would need to be taken with the advice process because ultimately you would likely still be dealing with older people wanting to release equity yet putting themselves in a position to need to continuously service the loan, and what would happen if that was no longer possible?”
By removing age restrictions from lifetime products more borrowers will be able to access an equity release product which comes with unique safeguards like a ‘no-negative equity’ guarantee.
Simon Chalk, technical manager, equity release, Age Partnership, said the broadening of the parameter was the green light for the industry to open its mind to more flexible product options.
“This initiative could prove to be the catalyst that propels equity release into the mainstream. New entrants may develop increasingly flexible plans that meet the new regulatory definition, without extending the core guarantees afforded by the ERC membership.”
