FCA relaxes affordability for hybrid lifetime mortgages

The new modification works by dis-applying the requirement to carry out an affordability assessment where interest payments are anticipated or required, providing that the specific lifetime mortgage allows the consumer to exercise at any time an option to convert the product to interest roll-up.

Providers can apply to the FCA for a waiver take advantage of the modification.

The FCA confirmed that intermediaries can rely on the provider’s modification when arranging or advising on that provider’s lifetime mortgages.

The FCA said:

“We have decided to make this modification available because we do not consider that an affordability assessment is required where there is no risk of arrears and repossession in the event of missed payments.”

Paul Smee, director general of the CML, added:

"This may look like a small change, but it is a really significant one that should allow the lifetime mortgage market to develop in a far more sensible and consumer-friendly way.

“It removes one barrier to the provision of sensible, safe and worthwhile lifetime mortgage products.”

Nigel Waterson, Chairman of the Equity Release Council, said:

“We are delighted that the FCA has decided to make a change to mortgage affordability rules when applied to lifetime mortgages. This has the potential to help more consumers make use of options already offered by equity release providers in later life and encourage further innovation within the market.

“We have been lobbying on the issue of affordability for lifetime mortgages for some time, and as part of our response to the FCA’s call for inputs at the end of 2015 and I am pleased that they have listened fully to our concerns. The optional payment of interest within a lifetime mortgage is different to that of a residential mortgage with the opportunity for consumers to switch to roll-up when they wish.

“This change highlights the growing recognition that equity release has an important part to play in the planning of funding for later life and we look forward to continuing to work with the FCA in the future.”