The FSA has proposed that different types of mortgage carry different levels of risk in CP146, its latest consultation paper on mortgage regulation.
The FSA proposals include assigning different levels of risk to different products, with equity release – or lifetime mortgages in FSA parlance – included within the higher risk bracket. Mortgages where the term is limited to 12 months or less and mortgages for £10,000 or less are identified as lower risk.
Flexible, current account, bridging loans, foreign currency mortgages, deferred interest mortgages and shared appreciation mortgages are contained within the 'medium risk' category.
The regulator upheld its opinion in previous consultations that lifetime mortgages – equity release mortgages targeted at older consumers -were more complex than standard mortgages, posed a higher level of risk and, therefore, justify a higher level of regulation.
The FSA say it reached the conclusion after considering the different types of mortgage available against criteria that could contribute to different levels of risk to consumers such as product characteristics, the type of consumer and the selling process, comparing each to the product with standard mortgages taken out by “the average consumer”.
It says: “For these higher risk mortgages, we propose to direct consumers towards getting advice if they are at all unsure, rather than relying on the non-advised route.”
The move comes just a fortnight after the Mortgage Code Compliance Board fined a mortgage intermediary a record fee of £66,300 for failing to give suitable advice on an equity release product to a customer. The Mortgage Code Arbitration Scheme (MCAS) found that the intermediary had relied on information provided by the introducer of the case, failing to ensure that their client fully understood arrangements being made on his behalf.