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Older customers: FCA worried by ‘opaque and complex’ later-life lending criteria

  • 21/09/2017
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Older customers: FCA worried by ‘opaque and complex’ later-life lending criteria
Later-life lending criteria are too “opaque and complex” and better signposting is needed to support customers using the market, according to the Financial Conduct Authority (FCA).

The regulator has highlighted these and several other areas in which it believes the sector needs to improve its treatment of and services to older customers.

However, it also recognised that lenders and intermediaries were taking steps to address some issues and flagged a handful of schemes which had been introduced to improve customer outcomes.


Large market

As part of its review of how older customers are accommodated by financial services, the FCA has taken an in-depth look at the later-life lending market.

The FCA recognised there was already a large market for later life mortgage lending, with potential for further growth.

It added that housing equity could form a large amount of an individual’s wealth in later life and that as the population ages there will be more people who want to access the equity in their property.

However, the FCA raised several concerns about how the sector was currently working, including:

  • neither providers nor intermediaries are confident at finding or referring customers who are rejected for a mortgage to another, more suitable provider. The opaque and complex nature of lending criteria and affordability assessments applied by lenders makes this worse;
  • barriers that may affect an older consumer’s ability to research, identify or access a mortgage product that meets their needs, for example the opacity and complexity of lending criteria;
  • limited appetite among some lenders for later life lending (with possible causes being lenders forming judgements that these borrowers may pose increased regulatory or commercial risks).


Key recommendations

To help address the situation, the FCA made several recommendations which it hopes the market will follow-up, all of which needed to be considered from the perspective of older customers.

It suggested lenders and intermediaries could consider how to signpost consumers to alternatives when they declined someone due to upper age limit or affordability.

“This could be by reiterating that a ‘no’ from one firm does not necessarily mean a lack of eligibility across the board, and signposting alternative options,” it said.

Integrating support across residential and lifetime mortgage sectors for older consumers was recommended, including integration with pension guidance as part of planning for and support in retirement.

Better tools need to be developed to help consumers compare and evaluate objectively their later life borrowing options, and lenders and advisers could also consider how to deliver a more joined-up approach to advising later life borrowers.


Innovative support

As part of its investigation, the FCA spoke to firms which had trialled approaches designed to support consumers experiencing a life event during the product lifecycle. These included:

  • a pilot scheme to encourage consumers to take out Powers of Attorney by discounting arrangement fees for applicants that registered a Lasting Power of Attorney (LPA). This incentive structure may prompt customers to better plan ahead for potential life events or loss of capacity. It also reduced a risk for the lender by ensuring that arrangements were in place for a named person to take over if, in the future, a borrower lost mental capacity and was unable to manage their finances;
  • one firm set up a specialist referral service to support cancer sufferers. This includes offering financial assistance by waiving owned interest, fees and charges across all product lines and seeking to maximise customer access to products and services. The firm said the service resulted in increased customer satisfaction during key life events. It has also noted additional benefits from increased employee engagement, positive reputation and reduced risk of compliance issues or consumer complaints;
  • another firm developed a call framework to help telephone staff identify potential vulnerability or coercion/duress during a lifetime mortgage transaction. In situations where coercion, duress or loss of capacity is suspected, the firm requires the consumer to obtain legal advice, at the firm’s own cost.

For its part, the FCA acknowledged that current complex regulations could be a part of the reason for stifling innovation or putting off newcomers into the market.

The regulator committed to reviewing its rules, but noted this could not be started until the outcome on the EU withdrawal was clear.

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