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FCA scraps affordability assessments on hybrid lifetime mortgages

  • 07/04/2016
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FCA scraps affordability assessments on hybrid lifetime mortgages
The Financial Conduct Authority (FCA) has removed the requirement for firms to carry out an affordability assessment on customers taking out hybrid lifetime mortgage products.

In a statement, the regulator said it has made the modification because “we do not consider that an affordability assessment is required where there is no risk of arrears and repossession in the event of missed payments”.

It said: “The modification works by dis-applying the requirement to carry out an affordability assessment where interest payments are anticipated or required, providing that the specific lifetime mortgage allows the consumer to exercise at any time an option to convert the product to interest roll-up.”

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.

The change follows a call from the Equity Release Council for the FCA to review its affordability assessment for these products, which formed part of the council’s submission to the FCA on call for inputs on competition in the mortgage market.

Nigel Waterson, chairman of the Equity Release Council, said: “We are delighted that the FCA has decided to make a change to mortgage affordability rules when applied to lifetime mortgages. This has the potential to help more consumers make use of options already offered by equity release providers in later life and encourage further innovation within the market.

“The optional payment of interest within a lifetime mortgage is different to that of a residential mortgage with the opportunity for consumers to switch to roll-up when they wish.

The FCA’s modification will apply to product disclosure rules as part of the Mortgage Conduct of Business (MCOB) handbook. Lenders will also be able to update Key Facts Illustration documents to include a description of the features and risks both when interest payments are being made and when they are rolled up.

Paul Smee, director general at the Council of Mortgage Lenders, said: “This may look like a small change, but it is a really significant one that should allow the lifetime mortgage market to develop in a far more sensible and consumer-friendly way. It removes one barrier to the provision of sensible, safe and worthwhile lifetime mortgage products.”

A consultation on the appropriate amendments for MCOB rules on hybrid lifetime mortgages will be published by the FCA in due course. The regulator explained that these amendments could differ from its current proposals, but firms can apply to make the changes from today.

The modification to lifetime mortgages as it currently stands will be available for a year, or until any amendment is made to the rules.

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