The FCA has published a discussion paper on inter-generational finance, with the regulator arguing it needs to adapt its approach to the changing needs of different generations, from baby boomers down to generation Z.
It identified peer-to-peer home finance as a potential big player in the housing market in future when it comes to addressing those challenges, though it accepted that demand for this kind of service “is still insignificant”.
“This may also be due to lack of awareness or lack of trust from potential lenders,” the regulator stated.
The FCA’s discussion paper follows a report from the House of Lords select committee on inter-generational fairness, which called on the regulator to do more to push the development of innovative products which will help younger homebuyers.
Rules do not discourage lenders
Looking at other potential barriers to innovation for products which tackle the inter-generational issues, the regulator noted there may be commercial concerns, such as the funding models required for equity release deals.
It said: “Firms require flexible long-term funding to provide equity release mortgages that can adapt to the uncertainty of repayment amounts and timing. As a result, funding for these products is predominantly from insurers.”
The regulator was also at pains to emphasise that its rules do not restrict or discourage lenders from offering mortgage deals to younger or older people.
The report stated: “The key factor is not age, but whether the consumer can afford to repay the mortgage. We allow firms to use their judgement, and have the flexibility to define their own appetites for commercial risk.”
Lender response to inter-generational challenges
In its discussion paper, the FCA noted that the industry has already started responding to the challenge by developing “innovative products designed to enable wealth transfer between generations”.
It highlighted products which help parents and grandparents to supplement their loved one’s deposit, as well as guarantor and offset deals, though it noted that “these products still represent a small portion of the market”.
Changing the rules
The FCA also emphasised that it is willing to adapt its rules where they are acting as a barrier to innovation, noting the way it has changed its regulations on lifetime mortgages and retirement interest-only deals.
It continued: “These changes are likely to improve access by allowing mainstream lenders to lend to older consumers and creates another option alongside more traditional equity withdrawal, downsizing and equity release.”