The UK’s Financial Conduct Authority (FCA) has warned that firms are not doing enough to ensure that consumers are given “appropriate” advice on equity release products.
Equity release is a way of accessing the cash in a property you own if you are over 55, by taking out a loan secured on your home, either as a lump-sum or in instalments. With the option of no monthly payments, equity release consumers can benefit from the stability of a long-term fixed interest rate, according to the UK’s top financial watchdog.
Demand for later life lending has grown in recent years and is set to increase, particularly as the coronavirus pandemic continues to have a significant financial impact on many people.
However, a new review by the FCA found three significant areas of concern which could increase the risk of harm to consumers.
Firms did not always give advice that sufficiently took consumers’ personal circumstances into account, according to the review. Advice being offered, including to some vulnerable consumers, is “not up to scratch,” said Jonathan Davidson, the FCA’s executive director of supervision, retail and authorisations.
Firms were not always challenging consumers reasons for looking at equity release where appropriate, the FCA found, and firms were also not always able to give evidence that their advice was suitable.
The FCA warned that consumers were not always aware of consequences of their decision to take out equity release and the impact it could have on their financial wellbeing for the rest of their lives.
The FCA said some of the costs can be less obvious but significant — the costs of ending these contracts or repaying early if personal circumstances change can be weighty and the costs of compounding interest over a long period of time can make equity release an expensive way to meet a short term borrowing need.
Davidson, said: “Deciding to enter into a lifetime mortgage is a big decision with a big financial impact for consumers. In many instances it makes sense but whether it does or not depends on personal circumstances and how they might change.
“It is therefore critical that advice offered to consumers looking at lifetime mortgages is suitable to their personal circumstances. It is clear from our review that advice being offered to such consumers, including some vulnerable consumers, is still not up to scratch.
“All firms offering these products should read our review and take action to make sure consumers are receiving advice tailored to their personal circumstances.
“We’ve continued to engage with firms where we had concerns and, as part of our ongoing supervision of Mortgage Intermediaries, we will be carrying out more detailed follow-up work into the suitability of advice in the lifetime mortgage market.
“If in doubt as to whether a lifetime mortgage makes sense for you as a consumer, you should explore your personal circumstance fully with your advisers or with independent sources such as the Money and Pensions Service.”