FCA highlights equity release funding as a barrier to innovation
The Financial Conduct Authority has named the long-term funding required for equity release mortgages as a possible barrier to innovation.
In a discussion paper on Intergenerational Differences, the regulator noted that, in general, only insurers feel able to offer equity release.
The regulator said: “While we are seeing some innovation in later life lending, there may be commercial barriers to innovation in this market, such as the funding models required for equity release.
“Firms require flexible long-term funding to provide equity release mortgages that can adapt to the uncertainty of repayment amounts and timing.
“As a result, funding for these products is predominantly from insurers.”
The FCA also said peer-to-peer home finance could provide innovation.
The regulator added: “Peer-to-peer home finance could play a bigger role in the housing market in the future.
“We note, however, that the demand for this kind of service is still insignificant. This may also be due to lack of awareness or lack of trust from potential lenders.”
Elsewhere the FCA said young people require greater flexibility in their mortgages than in the past, while older generations may benefit from more innovative products to help them maintain living standards in later life.
The FCA said: “Anecdotal evidence of Millennials suggests there is more fluidity between the workplace and further education.
“Young people may tend to join the labour market, then go back into education to enter the labour market again later – at times more than once. These consumers may require greater flexibility in their mortgage and credit products.”