LiveMore responds to the FCA’s letter to CEOs of lifetime mortgage providers

01 July 2022

Comment from Leon Diamond, CEO, LiveMore on the FCA’s letter to CEOs of lifetime mortgage providers:

We welcome the FCA paper on Supervisory Strategy for Lifetime Mortgage Providers.

The well-publicised cost of living crisis impacts many borrowers, and we fully support and agree with the need to update affordability models; and also ensure that sufficient tools exist to help existing customers if they experience vulnerability or financial distress for the first time.

There is undoubtedly the risk that lifetime mortgages are sold as an easy option for later life borrowers as there is often no affordability checks performed. We think it is important that all options are considered so that the mortgage fully meets the customer’s needs. This means that in practice serviced interest options should always be considered - something the FCA review of selling practices in this sector highlighted back in July 2020.

Consumers best interests are served through impartial advice and a review of all suitable options, which would include mainstream mortgages together with Retirement Interest Only (RIO) mortgages. If neither of these are suitable, then a lifetime mortgage can be considered. This approach would achieve the FCA’s proposed “Consumer Duty” which, once implemented at the end of July, will require firms to support their customers in making good financial decisions, avoiding foreseeable harm and ensuring that customers get good customer outcomes.

We often hear of examples where customers are directed to one solution and often that is a lifetime mortgage by questions like “would you prefer to have a guarantee that your house can never be repossessed?” or “would you prefer a mortgage where there are no monthly mortgage payments?” These are closed questions and how many consumers would honestly answer No to either of these?

The FCA letter states that lifetime mortgage lenders have challenges around customer vulnerability, product design and governance and its relationship with intermediaries, particularly where there may be conflicts of interest, either due to high procuration fees or advisor-provider relationships. This can be evidenced by the fact that procuration fees for lifetime lenders are materially higher compared to the mainstream market.

We all want the later life lending market to succeed as we see it as an underserved section of the mortgage market.

However, we all need to ensure greater transparency occurs and that inter group payments need to be made visible. Consumers can then understand better what might be driving the sale of one product type over another.

We also advocate that we simplify early repayment charges by abolishing complex and difficult to understand mark to market early repayment penalties. We should also encourage active switching options and reviews to drive greater ongoing value for borrowers.

We look forward with interest to see how the lifetime lenders meet the challenges set by the FCA.