FCA: Firms must do more to ensure appropriate equity release advice

Jessica Bird

June 17, 2020

Firms must do more to ensure they are always giving appropriate advice to equity release consumers, according to a Financial Conduct Authority (FCA) review.

The review found equity release to be working well for many consumers, but it highlighted three significant areas of concern which increase the risk of harm.

Advice given by firms did not always sufficiently take into account consumers’ personal circumstances, consumers’ reasons for looking at equity release were not always challenged by firms, and firms were not always able to evidence that their advice was suitable.

In its review, the FCA voiced concerns that advice given to take out equity release products could not always be shown to be in the best interests of all consumers given their personal circumstances.

The costs of compounding interest over a long period of time can make equity release an expensive way to meet a short-term borrowing need, while the costs of ending these contracts or repaying early if personal circumstances change can also be significant.

In light of COVID-19, which has had and will continue to have a significant financial impact on consumers, the FCA found it is more important than ever that advice is appropriate.

The review was undertaken as part of exploratory work on later life lending, where it considered the borrowing opportunities available to consumers aged 55 and over.

Jonathan Davidson, executive director of supervision, retail and authorisations at the FCA, said: “Deciding to enter into a lifetime mortgage is a big decision with a big financial impact for consumers.

In many instances it makes sense, but whether it does or not depends on personal circumstances and how they might change.

“It is therefore critical that advice offered to consumers looking at lifetime mortgages is suitable to their personal circumstances.

“It is clear from our review that advice being offered to such consumers, including some vulnerable consumers, is still not up to scratch.

“All firms offering these products should read our review and take action to make sure consumers are receiving advice tailored to their personal circumstances.

“We’ve continued to engage with firms where we had concerns and, as part of our ongoing supervision of mortgage intermediaries, we will be carrying out more detailed follow-up work into the suitability of advice in the lifetime mortgage market.

“If in doubt as to whether a lifetime mortgage makes sense for you as a consumer, you should explore your personal circumstance fully with your advisers or with independent sources such as the Money and Pensions Service.”

Sign up to our daily email