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ERC urges FCA to ease affordability rules

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The Equity Release Council is urging the Financial Conduct Authority to consider easing mortgage affordability rules to help consumers make interest repayments before swapping to a roll-up deal.

Changes to the Mortgage Conduct of Business rules following the Mortgage Market Review mean that lifetime mortgage contracts which permit consumers to pay interest for a period are subject to providers’ requirement to assess their affordability.

This is despite the fact that interest payments are always optional and customers will never lose their house by being unable to pay this way, according to the ERC.

The council says that some customers fit for lifetime mortgages might not now pass affordability assessments, may not want to go through the assessment process or be recommended alternative products.

The council has asked the FCA to consider whether a relaxation of rules originally designed for residential rather than lifetime mortgages would help more consumers unlock their housing wealth while protecting a larger amount of equity in their property.

A relaxation might also support existing providers’ ability to expand their product range and encourage new entrants, the ERC says.

The request from the council was part of its evidence submission to the FCA’s Call for Inputs on competition in the mortgage market.

The FCA is set to outline next steps in the form of a summary statement in the first quarter of 2016.

Equity Release Council chairman Nigel Waterson says: “We welcome the proactive decision by the FCA to review whether there are any barriers to competition in the mortgage sector.

“Retirement lending is a crucial part of this and there needs to be careful consideration of the factors which differentiate ‘residential’ and ‘lifetime’ borrowing.

“As part of our wide-ranging input we highlighted that revisiting affordability rules may help more consumers to make use of options already offered by equity release providers in later life, as well as encouraging more new entrants to the market.

“There is a growing recognition that equity release has an important part to play in the planning of funding for later life, and we look forward to working together with the FCA on the back of its findings.”

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