Retirement lending regulation likely to change

Sarah Davidson

January 25, 2016

Mortgage regulation is likely to change following two landmark decisions from the Financial Ombudsman Service forcing lenders to extend interest-only terms indefinitely for retired borrowers.

Building Societies Association chief executive Robin Fieth revealed he has been in conversations with the regulator about how to amend mortgage regulation following the two cases.

He said: “We are constructively engaged with the Financial Conduct Authority and its work on the ageing population project which is now underway.

“We want to work hand-in-hand with the regulator to achieve good outcomes for borrowers. That means where regulation needs to change in relation to advice, we are in discussion with the FCA.”

The FCA declined to confirm whether it planned to introduce changes to the Mortgage Market Review preventing lenders from extending interest-only mortgage terms for the lifetime of the borrower unless they could prove a repayment vehicle.

But in a statement the FCA said that its “work on ageing population is progressing and we plan to launch a discussion paper in the coming months”.

In December FOS published two case studies of borrowers who had their complaints upheld because their lenders had given them an interest-only mortgage allowing the sale of the property as the intended repayment vehicle.

In one case the borrower took an interest-only mortgage on a 25-year term in his early 70s and complained that he thought he had a lifetime mortgage.

Now in his 80s he was worried he would be forced to sell his home in his late 90s when his term ran out.

FOS upheld the complaint and ordered the lender to change the mortgage to one with no set end date which would allow the capital to be repaid on the borrower’s death.

FOS also recommended the term of an interest-only mortgage be extended “indefinitely” and be repaid upon death for a widow in her 80s who complained after being told by her lender arrangements would have to be made to sell the house if she could not repay the capital at the end of her original term.

FOS said at the time: “We pointed out to the mortgage company that they’d already agreed to lend money to Mr and Mrs R into their 80s – knowing there was no repayment vehicle in place. In our view, Mrs R was in her current position because of their previous lending decision.

“We didn’t think it was fair to now simply say she was too old – and force her to sell her home.”

Fieth said: “The question has to be that in order to meet customers’ needs and provide good outcomes lenders need FOS to tell them to break FCA regulation.

“We are in discussions with the regulator now to amend that regulation.”

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