The FCA looked at the work of firms which account for half of all lifetime mortgage sales and found that advice did not “meet the standards expected”. The regulator said this occurred in “many cases”.
For example, the review uncovered that there was a lack of evidence to show that a consumer’s individual circumstances were considered and alternatives to lifetime mortgages were not being discussed.
The regulator said it worked with the largest firms in the market to improve their advice processes. Its work also led to the removal or amendment of nearly 400 promotions which it described as “misleading”.
It asked firms to make sure advice was personalised and considered individual circumstances.
Most of the firms that were under review have also changed their adviser incentives.
The FCA said other lifetime mortgage advisers should pay “close attention” to the review’s findings and “act immediately”.
Actions to take
The regulator detailed its expectations for firms in the later life mortgage market, which applies to providers, advisers and consumer groups.
It said it was “disappointed” to find that firms were not acting on its previous findings in 2020 where it said there was evidence of advice not being in a client’s best interests.
The review revealed there were still examples of poor consideration towards borrowers’ income and expenditure, minimal discussion around alternatives, incentivising sales at the expense of good advice, and advising in a way that favoured lifetime mortgage products.
It asked firms to personalise the advice given to consumers, challenge their assumptions and evidence the suitability of advice.
Regarding financial promotions, the FCA found some financial promotions were inaccurate or misleading, highlighted the benefits of lifetime mortgages but not the risks and used their regulatory status in a promotional way.
In combination with following Consumer Duty rules, the FCA expects advisers to give consumers information that is clear, fair and not misleading. They are also expected to make sure consumers are given appropriate information about the overall offering in a timely and understandable manner.
Advisers must collect all the required information to give tailored advice and have balanced conversations about the alternative options.
They must also not prioritise adviser commission over good advice, have processes to minimise potential conflicts of interest and the risk of bias, and regularly review outcomes.
It warned: “Firms that are in breach of our rules and do not meet our expectations should expect further regulatory focus and intervention.”
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Releasing money tied up in your home later in life is a big decision and can have a financial impact on consumers and their families well into the future.
“Our review led to the largest later life mortgage firms making improvements to their sales and advice practices, and almost 400 promotions have been removed or amended where firms have identified issues with them. We expect all firms to assure themselves they comply with existing rules and guidance and higher standards under the consumer duty.”
A welcome probe
Firms in the later life mortgage market reacted positively to the FCA’s review and agreed with the actions for firms to take.
Jim Boyd, CEO of the Equity Release Council, said: “We share the regulator’s commitment to putting customers first and ensuring they are fully informed and advised about their options. Its findings will inform our ongoing standards-setting work to help raise and reinforce best practice consistently across the sector.
“Modern equity release helps people to enjoy financial freedom and a better quality of life. Carefully considering the option of releasing equity, alongside all alternatives, should be part of every homeowner’s retirement planning.
“The Council and our members are undertaking significant work to reinforce advice standards and ensure clear customer communications. We wholeheartedly support the new Consumer Duty and will continue to work with the regulator, members and wider industry to take every opportunity to improve customer experiences.”
Leon Diamond, CEO and founder of LiveMore, added: “We wholeheartedly welcome the FCA’s report into the lifetime mortgage sector, which highlights practices in the industry that deserve the regulator’s attention.
“The effect of compound interest on a lifetime mortgage is significant, especially in a high interest rate environment, making this form of finance expensive if a mortgage is held for many years. So, if a standard mortgage is affordable, that is usually the best outcome for the customer and there is an easy way to find that out.
“We are firmly of the view that an affordability assessment should be undertaken, in all cases, before any decision is made about going down the route of a lifetime mortgage.”
Diamond said: “A fundamental part of an adviser’s role is to fully understand the income and outgoings of customers. This provides a clear picture of whether they can afford monthly mortgage repayments and should be the first option to consider. If an interest-only or a capital and repayment mortgage is not affordable then a lifetime mortgage could be the second option.
“We published a white paper in June, Consumer Duty: why later life lending is about to change forever. It highlights why Consumer Duty is good for the industry and as a solutions-led lender, we abide by the rules and welcome them with open arms.
“Anything that improves the industry for the good of the consumer can only be a good thing and this report from the FCA is a strong reminder for every broker and lender to put the customer first.”
Paul Glynn, CEO of Air, said: “Any Financial Conduct Authority announcement which highlights perceived failings in an industry is never welcome news, but the FCA did note that all firms included in the review have already made changes to sales and advice processes to address these points. Our sector needs to build on this work and consider how we avoid the behaviours called out by the review if they are evident in a firm’s approach.
“Given the recent introduction of Consumer Duty legislation, advisers are already stepping up but robust compliance, clear documentation and a commitment to ongoing education and training need to be part of a firm’s DNA. Whether you choose to use resources or training from platforms such as Air or look directly to lenders for insights, there is a significant amount of resource available.
“Advisers who operate in the later life lending market understand their responsibility in helping older homeowners make the right choices, so we need to actively consider how we personalise, achieve, and document this.”
