The Times recently ran an article that highlighted issues with equity release/lifetime mortgages. These mortgages have been plagued by negative connotations and even litigation ever since the first home income plans appeared in the 1980’s. All subsequent variations of the original schemes have suffered their own issues. However, what made this article more worrying was the fact that the commentary was based on the most recent incarnation of these lending schemes.
Digging into the comments section of the article, it appears many readers are unsympathetic to the circumstances some of the borrowers have found themselves in. “Let the buyer beware” is one of the more polite responses, but the financial services market cannot be simplified like that. It has been regulated for decades and the new FCA ‘Customer Duty’ regime will place further responsibilities on lenders to put customer requirements first.
As with previous waves of equity release products, the market is seeing exponential growth. The growth, this time round, is driven by the combined effect of house price inflation and the cost-of-living crisis, which is spawning a new generation of asset rich and income poor homeowners.
The FCA has concerns about these schemes, including modern incarnations, as evidenced by the content of its recent Dear CEO letter to lifetime loan providers. Even in this rapidly changing world, the FCA strategy does not change; “reducing and preventing serious harm, setting and testing higher standards and promoting competition and positive change.” The regulator understandably requires lifetime loan advisers and lenders to ensure they place sufficient emphasis on the fair treatment of customers, setting higher standards of care to deliver good customer outcomes. It also identifies seven areas where it expects firms to pay particular attention to the needs of this specific group of customers.
The challenges in the Dear CEO letter are not new to the Rockstead team. Frankly, it could have been a ‘cut and paste’ from a Rockstead Scope of Work. We have undertaken gap analyses to ensure that the correct systems and controls are in place, built processes and checklists to address identified gaps and monitored calls to ensure agents are asking the relevant questions. We have conducted risk assessments within portfolios and undertaken re-underwriting exercises, both before and after release of funds.
All lending, including lifetime lending, is in our business sweet spot, as is the oversight challenges by the FCA. If you’d like to discuss our views, learn how we can help you improve governance, risk assessments and oversight, give us a call.