FCA reintroduces retirement interest-only mortgages

In September last year, an FCA consultation paper set out plans to reintroduce retirement interest-only mortgages, which were redefined as lifetime mortgages after the implementation of MCD.

From today, retirement interest-only mortgages will be excluded from the definition of a lifetime mortgage.

‘Retirement interest-only mortgages’ will be classed as a separate interest-only mortgage for older consumers where the lender will not seek repayment of the loan until a specified life event (usually the customer’s death or move into residential care).

The regulator will also restrict the sale of retirement interest-only mortgages to older consumers above a certain age.

The FCA says the Handbook changes will "improve access to mortgage borrowing for older consumers with reliable retirement incomes, including some of those with maturing interest-only mortgages but who do not have sufficient funds to fully repay".

The FCA said: "We envisage retirement interest-only mortgages as an additional option alongside downsizing or equity release, not just as a solution for customers with maturing interest-only mortgages. A retirement interest-only mortgage will not be the default option for customers with maturing interest-only mortgages and, as with all lending, the decision to offer these mortgages will be a commercial judgement."

Equity release firms and many other respondents questioned a consequence of the FCA's proposal, which was to allow execution-only sales in some circumstances. They argued that advice should be compulsory, as it is under equity release rules.

Key reasons for compulsory advice were to ensure that customers would be told about products across both equity release and standard mortgage markets, and that older, vulnerable consumers would risk repossession if failing to keep up payments on a retirement interest-only mortgage.

The FCA responded that advice should not be compulsory for the sale of retirement interest-only mortgages.

In its Handbook notice, the FCA said: "Advice will not mitigate the chief risks identified by respondents and, indeed, we already have a number of mitigants in place. For example, the risk of repossession is mitigated by our responsible lending rules and our rules on how to treat customers in payment difficulty."