Ray Boulger: Retirement interest-only fixes FCA’s mistakes

Michael Lloyd

March 21, 2018

The FCA wants to bring back retirement interest-only mortgages because it never considered the consequences of making interest-only mortgages less available, Ray Boulger, senior technical manager at John Charcol argued.

He thought retirement interest-only mortgages are helpful and are being introduced to correct the unintended consequence of Mortgage Market Review rules.

Boulger said: “When the FCA introduced retirement-interest only rules in the MMR, it didn’t think through all the consequences and isnow just addressing these when introducing interest-only retirement mortgages.

“Part of the FCA’s remit is for the consumer. It introduced rules to try and protect the consumer but made it more difficult for lenders to offer that product.

“So it deprived some people of a suitable product and made it more expensive because of less competition.

“The FCA’s MMR encouraged downsizing by making selling the property a sensible repayment strategy for interest-only mortgages but young people don’t need to downsize.”

Boulger added: “The FCA didn’t recognise that not everyone needs to downsize. There will be a minimum age for retirement-interest-only mortgages. Clearly the older you are, the less you need to downsize.

“The key challenges for brokers will be to be able to discuss the pros and cons of a lifetime and interest-only and to be aware of both options and know when each is appropriate.”

Similarly, Gemma Harle, managing director of the mortgage and protection network at Intrinsic, thought the retirement interest-only mortgages are a good idea.

She said: “I think it’s a good piece of work the regulator did because they proactively made the changes.

“They recognised the challenges out there- that people out on normal interest-only mortgages don’t have the means to repay them or don’t want to. The changes means that mainstream lenders can now provide them now if they wish to.

“I think these were thought through because of the FCA doing a lot consultation, listening to feedback and launching it on the back of the work they did on the ageing population.”

However she disagreed that the FCA didn’t think through all the consequences of interest-only mortgages.

Harle added: “The regulator didn’t say interest-only was bad, just that it had to be suitable and as a result the lenders backed away from it and changed their criteria.

“It was an unintended consequence I think, which meant interest-only was hardly available and you had to change the mindset of that.

“It suited lenders not to do them and then they could blame the regulator but actually it wasn’t necessarily that, perhaps they didn’t have the appetite for that. It’s a commercial decision they can make, not necessarily forced onto them by the FCA.”

Boulger went on to discuss other issues lenders need to address, including ensuring older customers that are more vulnerable understand what they are signing.

He said: “I think lenders will want some specific criteria, for example, having a condition that the borrower has a lasting power of attorney.

“So from a lenders’ perspective, I think it’s attractive because of low LTVs but lenders need to factor in at some stage, they may have to hold the borrowers’ hands more because of older borrowers being more at risk of losing their capabilities.

“I think those lenders prepared to lend to relatively older borrowers tend to be building societies because they do more deals on a one-on-one basis.”

Harle said: “If people are lending into retirement you treat them in a different way because they are more likely to be vulnerable. The lenders now protect them a lot more when they drawdown.

“There can be a lot of fraud or pressure from their family or even more frequent, carers, but lenders do a lot of checks. We pre-approve it. The adviser does the advice but before that can go ahead we check it all.”

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