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Retirement interest-only mortgages look set for comeback

by: Chris Menon
  • 05/09/2017
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Retirement interest-only mortgages look set for comeback
The Financial Conduct Authority (FCA) is considering bringing back retirement interest-only mortgages and has issued a consultation paper canvassing views on the matter, requesting feedback by 1 November.

In the Quarterly Consultation document the FCA explained what has prompted the move: “Work for our forthcoming Occasional Paper on the Ageing Population has identified a regulatory barrier to a form of mortgage lending that could meet the needs of some older borrowers; in particular, older consumers with maturing interest-only mortgages and no repayment vehicle, and those seeking to release equity from their homes without the cost of interest roll-up.”

The FCA has previously classified retirement interest-only mortgages together with lifetime mortgages, as part of implementing the Mortgage Credit Directive, effectively calling both ‘lifetime mortgages’. However, it is now proposing to separate them, not least because of the different risk characteristics. 

The FCA explained: “Retirement interest-only mortgages have significantly different risks compared to lifetime mortgages. In particular, they do not feature the roll-up of interest, meaning that consumers are not at risk of rapid equity erosion and the subsequent reduction of funds available for a bequest.”

A final decision on implementation is expected to be made within 3 months of the end of the consultation process.

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