October 2016 – Ageing population
The FCA seems to be taking positive steps in its work on the ageing population. It launched this project at the beginning of the year by issuing a discussion paper inviting the industry to suggest the focus of its work. Following the feedback, it received, the regulator has now provided an update.
It is encouraging to see that mortgages will form a part of its programme. Our member firms have told us how they experience older customers being prevented from accessing more suitable products. These customers are unable to get a mortgage as they exceed a lender’s maximum age or they have retired, despite being able to afford it. Since the pension freedoms were introduced there are also difficulties with how both uncrystallised and crystallised pensions are treated by different lenders’ policies.
The FCA intends to “look in more detail” at markets that restrict access based on age. It will be interesting to see what action the regulator takes around maximum ages on mortgages. There is no mention of possible rule changes at this stage, and the FCA seems keen to explore voluntary initiatives first, particularly around signposting customers so they understand their options. The sentiment behind the Santander and Legal & General partnership is a good example of this. If customers are coming to the end of their interest-only mortgage term without a repayment strategy, increasing awareness of other options, such as lifetime mortgages, can only be better for customers. This initiative, which gives access to independent advice from a third party, is a great step forward.
We raised concerns with the regulator last year that customers have been unable to access more suitable types of products in the lifetime mortgage market as a result MMR, as the rules require an affordability assessment even if the product allows customers to roll up the interest into the loan. We were pleased to see the FCA issue a modification in April which allows this requirement to be dis-applied and we welcome the recent consultation paper that transposes this change into the rules. This should mean greater flexibility in how these customers can make their monthly payments.
Even older customers understand that they will be seen as ‘riskier’ by lenders, but in order to ensure their needs are met, these risks need to be dealt with effectively. Comprehensive conversations with customers, and with their children where appropriate, at the point of sale should establish and manage expectations. So if a spouse dies and the widow(er) cannot continue to meet the repayments, selling the property should not be an unforeseen option for the surviving spouse. In fact, many lifetime mortgage customers seem to be prepared for this. The mortality of older customers does mean that the risk of this happening is greater, but lenders could deal with this by giving customers who experience such lifestyle events extra time and forbearance or even support in selling their property. There is also no reason for this treatment to apply only to older customers; it could be extended to all customers facing the same circumstances. That is not to say that any customer who fails to make payments be treated this way, but those who experience a lifestyle event are likely to become vulnerable customers. The FCA is always interested in how firms deal with consumer vulnerability, and protecting older people in vulnerable circumstances will form a part of this project.
Whilst good work is being done to address older customers’ needs, we hope that industry will continue to innovate and that it is mindful of the implications if the FCA’s calls for voluntary initiatives are unanswered.
AMI Senior Policy Adviser
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