The Council said that by relaxing affordability requirements, customers with lifetime mortgages could have the option to make interest repayments initially before switching to a roll-up arrangement.
It added that a more flexible approach to mortgage affordability could enable existing providers to expand their product range and encourage new entrants into the market.
Lifetime mortgage contracts that give consumers the option to pay interest for a period became subject to affordability rules based on the requirements of providers following the Mortgage Market Review in 2014.
According to the Equity Release Council, this could mean that those previously interested in taking out a lifetime mortgage might now be put off by the risk of being rejected under stricter rules.
The Equity Release Council’s comments come from a submission to the FCA following the regulator’s call for inputs on competition in the mortgage market. The FCA is due to outline the next steps of its review in the first quarter of this year when it publishes a summary statement.
The Council’s submission to the FCA also includes a separate request for the regulator and government to consider the long-term impact of tax and regulatory decisions which could affect equity release lending.
It said that the FCA should also engage with the Prudential Regulation Authority (PRA) to consider how equity release is funded. The council urged the FCA and PRA to look at the extent to which current prudential requirements create barriers for firms and whether a broader approach could be taken in order to enable access to alternative sources of funding.
Nigel Waterson, chairman of the Equity Release Council, said: “We welcome the proactive decision by the FCA to review whether there are any barriers to competition in the mortgage sector. Retirement lending is a crucial part of this and there needs to be careful consideration of the factors which differentiate ‘residential’ and ‘lifetime’ borrowing.
“As part of our wide-ranging input we highlighted that revisiting affordability rules may help more consumers to make use of options already offered by equity release providers in later life, as well as encouraging more new entrants to the market,” he added.
“There is a growing recognition that equity release has an important part to play in the planning of funding for later life, and we look forward to working together with the FCA on the back of its findings.”
