The FCA published the next steps for the Mortgage Rule Review earlier today, with later life lending a key area of focus.
The regulator said that in 2026, it will undertake a “focused market study” to “assess the readiness of the market to deliver for consumers in future” and “to inform future policy development”.
It will also consider changes to its RIO framework, which include affordability requirements and the application of loan-to-income (LTI) limit requirements to “support market development”.
The regulator said it would “explore options to support the delivery of more holistic advice”.
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FCA wants to impose ‘pro-competitive solutions’ post-focused market study
On the market study, the FCA said the lifetime mortgage industry “continues to reform and innovate”, with new product features and flexibilities introduced in the past few years.
These include options to make full or partial interest payments, paying down capital with reduced or zero repayment charges and flexible drawdowns, with further innovation “achievable”.
There are several challenges, including the fact there are 16 active lenders in the lifetime mortgage space and 6,155 qualified to advise on equity release, with only 2,000 being classed as “active individual advisers”.
Low consumer awareness, understanding and trust, along with concerns about the cost and scope of advice, were also cited as challenges.
Prudential standards and investor demand for equity release-backed securities have “limited or created disincentives for insurers to expand in the lifetime mortgage market”, which impacts product availability, pricing and innovation.
“We will consider how we can support the market to adapt and look to support evolving industry innovations and opportunities to get the right long‑term solutions in place.
“Where we find change is needed, our focus will be on implementing pro‑competitive solutions that support innovation, and for consumers to easily access products and services [that] meet their needs and provide fair value,” the FCA said.
RIO affordability assessments to be examined
On the RIO side of things, respondents said it was an “underused solution for many customers”, with regulations being the “main barrier”.
The product can benefit older consumers, as it can be more cost-effective than moving home or a lifetime mortgage, and those wanting to make interest payments rather than full repayments.
A “significant barrier” to entering the market is RIO affordability assessments, as current guidance is “applied in a restrictive way”.
“Many lenders only assess affordability using the current income of the customer with the lowest income, rather than allowing for changes to their income or assets on the death of their partner, the other customer.
“This prevents more realistic assessments of customer affordability if one of the parties dies. Others have asked whether they could consider other repayment strategies if a joint borrower dies, such as planned use of equity release,” the regulator said.
The FCA said it would renew its guidance to see if changes needed to be made to “support alternative affordability assessments” for RIOs.
Support for holistic advice but ‘lack of consensus’ on how this should develop
The FCA said there was “broad support for making advice more holistic” as it would benefit consumers.
However, there is a “lack of clear consensus” on what holistic advice is and what it would look like.
Barriers to holistic advice include regulatory silos and split qualification requirements, as well as regulatory reporting requirements, the RIO affordability assessments, and external standards, which require some customers to get legal advice.
“To realise its benefits, we need to undertake further work and engagement to define the scope of holistic advice and the outcomes it should aim to achieve. Given the scale and breadth of policy development, we will run this in parallel with our focused market study and ensure respective findings and insights are shared,” the regulator said.
The FCA said the idea of introducing enhanced levels of advice for specific borrowers was “met with caution” and it would not take this idea forward.
“Industry respondents felt that advisers regularly deal with a range of borrowing needs and that they already tailor advice based on their customers’ circumstances. Both industry and consumer groups thought that introducing an enhanced standard of advice risks creating a two‑tier system, which could undermine the Consumer Duty and result in a shift in focus to process over outcomes. A consistent standard of advice for all advisers is preferred.
“While enhanced advice might offer benefits in high-risk or complex transactions, many believed that similar outcomes could be achieved through mandatory continuous professional development, updated qualifications and training, and better referrals, rather than new advice standards,” the regulator said.
Later life lending ‘no longer a niche option’
David Burrowes, chair of the Equity Release Council (ERC), said the FCA’s “acknowledgement that housing wealth will play an increasingly important role in later life financial wellbeing is both timely and necessary”.
He explained: “For many older homeowners, later life lending is no longer a niche option, but a practical and responsible way to support retirement income, manage debt, or remain in their own homes for longer.
“The FCA’s roadmap highlights demographic change, longer mortgage terms and pension under-saving as structural challenges facing the UK, and signals further work to ensure the later life lending market is ready to meet growing demand.”
Burrowes said it strongly welcomed the regulator’s commitment to a focused market study of later life lending.
“This presents an opportunity to ensure the market continues to evolve in a way that delivers good outcomes, fair value and consumer confidence, while supporting innovation and choice,” he noted.
Burrowes said the “success of later life lending depends on trust, understanding and advice that puts people’s long-term needs first”.
“Our standards have helped set a strong foundation. We look forward to working closely with the FCA and industry to build on this as demand grows,” he said.
Burrowes also welcomed the FCA’s intention to explore more holistic approaches and supported its “efforts to break down silos and ensure people can access clear, joined-up guidance when making some of the most important financial decisions of their lives”.
The ERC will “actively engage” with the FCA’s forthcoming market study and consultations and “continue to represent the interests of consumers, advisers and providers across the later life lending sector”.
“Later life lending has a vital role to play in improving financial resilience in later years. This roadmap shows the regulator understands that reality, and we stand ready to help shape the next phase of responsible market development,” Burrowes noted.
