What has happened?
The FCA has warned in April 2022 that it intends to look again at the equity release/lifetime mortgage advice market to make sure it is working in the best interests of consumers.
What are the key points of the FCA’s equity release advice strategy?
In 2020, the FCA had criticised unsuitable equity release advice after its review found that some mortgage advisers were falling short in the later life lending market. The warning came after the regulator said it would be carrying out a more detailed follow-up review of advice in this market as part of its ongoing supervision of mortgage intermediaries.
In its review, the FCA concluded that its work in the equity release market had uncovered mixed results, with some cases where lifetime mortgages were working well and releasing equity for consumers who could not afford traditional mortgages. However, it also found that the reasons why consumers look at equity release were not always challenged by firms and that advisers were not always able to evidence that their recommendations were suitable.
Specifically, the FCA found examples of:
- Advisers not sufficiently accounting for the different financial circumstances of customers, for example, those aged in their 50s and still working and those who are retired and on a fixed income, and the impact this has on the options available to them (the FCA commented “We were disappointed to find that evidence on file indicated advisers had largely adopted a form-filling approach to fact finding”).
- Advisers relying wholly or substantially on the Key Facts Illustration (KFI) to show customers the long-term costs and implications of taking a lifetime mortgage.
- Some advisers appearing to rely solely on customers’ initial stated preferences and to be effectively ‘order taking’ without taking sufficient steps to assess whether the product was appropriate to each customer’s specific needs or circumstances. Often, advisers did not explore why customers had these preferences or, where there was any potential negative impact (financial or otherwise), challenge these views.
- The impact of debt consolidation was not properly explored, as the default assumption was often that equity release would be suitable, with alternative solutions being discounted with little consideration. This included debts at low interest rates or with a short period remaining being consolidated without a compelling reason to do so.
- The customer’s financial circumstances were not given sufficient weighting by the adviser. For example, where customers had significant surplus income recorded, this had little or no bearing on the final recommendation, which solely focused on a customer’s preference to make no monthly payment.
- Advisers recommending changes to property ownership, including the removal of a joint owner (who was too young to meet lenders’ eligibility requirements) from the title deeds, to allow equity release to take place. This was without evidence of sufficient discussion of the impact on the customers of the recommended change of ownership.
Source: The equity release sales and advice process review 2020
The review was undertaken by the regulator as part of its exploratory work on later life lending, considering the borrowing opportunities available to consumers aged 55 and over, some of whom may be vulnerable.
In its recently issued business plan for 2022/23, the FCA stated that its work in this space could include following up on its earlier findings about poor quality advice and checking that standards among intermediaries giving advice have improved.
How can we help you?
If you’d like to know more about how we can help you with your equity release or later life lending advice processes, or any other regulatory compliance issues, our specialist team is here to help.
Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.