Georgina Smith is managing director of Stonehaven
Equity release has come a long way in recent years with more innovative products designed to appeal to a wider audience. The impact of the Mortgage Market Review (MMR) is still to be seen, but it could offer a tremendous opportunity for providers of lifetime mortgage products which allow homeowners to service the interest on their borrowings.
We’ve already seen mainstream lenders starting to respond to the MMR by restricting their lending and affordability criteria, which aims to address the problem of future borrowers ending up with a mortgage that they can’t afford. We’re also starting to see the impact of the interest only time-bomb. There are now huge numbers of borrowers coming to the end of their mortgage term who have no repayment vehicle in place and no option to extend their current deal.
There are others who will want to raise additional finance or may simply want to fund a purchase. In this environment, financial advisers will be required to find a solution, and it may well be a lifetime mortgage. With fixed interest rates, no threat of repossession, industry safeguards and products offering the ability to service the interest, a lifetime mortgage could in fact be a sensible solution for many.
Whilst the new rules don’t apply to traditional interest roll-up lifetime mortgages, the FSA (now FCA) made the decision that the affordability rules would apply to interest only lifetime mortgages.
It’s important to note that our Interest Select customers are already, and always have been, protected. During the advice process a financial adviser assesses their income and expenditure to see if servicing the mortgage is a sensible idea. Alongside this, our product was purposefully designed to allow the interest payment to be an amount chosen by the customer, based on what was affordable and realistic. Alongside this there’s the added safeguard that the interest payments due could be cancelled at any point and the mortgage could revert to interest roll-up.
With the introduction of the guidelines we need to ensure that these new affordability rules further enhance the existing products and that new solutions are created for older customers affected by the interest only time-bomb.
Working towards April next year, preparation is already underway and we’ll start engaging with advisers shortly. We want to understand what information is already being collected by advisers and how income is being verified. Obviously we want to make this simple for everyone, and would prefer to apply the same affordability logic as advisers are currently using.
The MMR should be good news, and we’re eager to adhere in a simple and straightforward way. We hope that above all that it brings our sector growth and offers more solutions to customers in the future.