FCA’s retirement interest-only mortgage carries risks

Ryan Bembridge

September 6, 2017

Retirement Advantage has cautioned against the Financial Conduct Authority’s plan to bring back retirement interest-only mortgages.

The later life provider warned that the client could end up worse off by skipping out on advice and not considering existing lifetime mortgage products with an interest-only option.

Watson, head of marketing at Retirement Advantage, said: “The proposed retirement interest-only mortgage may also be offered without the client needing to take financial advice.

Retirement Advantage launches cashback lifestyle equity release product

“We believe this carries its own risks and could potentially leave the customer worse off. With lifetime mortgages, customers have the safeguards of financial advice.”

She added: “Lifetime mortgages are a viable and a flexible option, and provide a number of safeguards that the proposed retirement interest-only mortgages may not offer.

“Lifetime mortgage customers can choose an interest-only option, where they repay just the interest on their equity release mortgage.

“One difference between this and the proposed retirement interest-only mortgage is that, if customers miss their monthly interest payments, they can switch to interest roll up without threat of repossession, so long as they abide by the terms and conditions, which offers customers real peace of mind.”

A Financial Conduct Authority consultation paper released last week proposed separating lifetime and retirement interest-only mortgages after they were put together during Mortgage Credit Directive implementation.

Retirement interest-only mortgages would be repaid through the sale of the property.

Responses to the FCA proposals must be submitted by 1 November.

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