Independent review and analysis

FCA fires another warning shot at later life lending

In a recent speech, at the Building Society Association annual conference, the FCA fired another warning shot across the bows of later life lenders. In particular, the regulator outlined its concerns about how lifetime loans were sold. Critically, it used the phrase “We wanted to see……..” It was a reference to its observations as far back as June 2020. This leaves us in no doubt that the FCA expected significant improvements, but they have not materialised.

Their demands were, and continue to be, based on concerns of insufficient personalisation of advice, insufficient challenging of customer assumptions and a lack of evidence to support the suitability of advice. Time is running out; the FCA expects meaningful change by advisers, funders, originating lenders and, as risk also sits within completed mortgages, portfolio holders.

Lifetime customers who are given unsuitable advice often suffer major harm and in the worst examples customers have been left in a position where ending contracts or repaying debt early can be unaffordable. It is not surprising therefore that the FCA expects advisers to challenge customer views more robustly at the outset.

As annual sales of lifetime loans have increased from 23,000 in 2015 to almost 45,000 last year, the sales risk is no longer limited to individual firms, but now presents systemic risk. This, coupled with the history of previous equity release scandals, results in little surprise that the FCA has now taken steps to remind the market of its requirements.

These challenges are not new to the Rockstead team. We have undertaken gap analyses to ensure that the correct systems and controls are in place, built processes and checklists to address identified gaps, monitored calls to ensure the agents are asking the relevant questions and built robust telephone scripts. We have conducted risk assessments within portfolios and undertaken re-underwriting exercises, both before and after release of funds. If you’d like to discuss our views, learn how we can help you improve governance and MI, risk assessments and oversight, give us a call.

As the FCA turn up the heat on lifetime loan compliance, Rockstead is here to help solve the challenges facing the industry.

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