The Financial Conduct Authority’s (FCA) proposals to improve access to later life lending products for older borrowers have been welcomed as “positive” and “pragmatic” by Key Equity Release.
Key warns, however, that proposed changes to Retirement Interest Only (RIO) mortgages could increase the risk of foreseeable harm.
Consultation on the FCAs plans, which are open until July 28th, includes plans for removing the surviving spouse affordability test on RIOs as well as measures to support increased access to mortgages for first-time buyers and the self-employed.
The proposed RIO changes could make a significant difference for those customers whose age and borrowing requirement puts them beyond lifetime mortgage LTV constraints. But Key believes the sequencing of any changes should be considered carefully.
Data in the consultation paper shows sales of RIOs in 2025 to over-55s borrowers totalled 3,002 while lifetime mortgages achieved 26,974 sales. By contrast sales of mainstream repayment mortgages were nearly 300,000 and interest-only mortgages nearly 65,000.
Will Hale, CEO of Key Equity Release, said: “Ensuring that all older customers get to the right outcome requires all later life lending options to be considered and this is where holistic advice is vital.
“RIOs and lifetime mortgages currently make up just 8% of residential mortgage sales to the over 55s. This cannot be right given the features and benefits offered by these products and our understanding of the wants and needs of older customers. The product outcome a customer receives remains a lottery based on where they happen to enter the advice ecosystem. It is these distribution challenges that the FCA need to address.”
He added: “Innovation in the lifetime mortgages space now sees products that allow interest to be served in full, in part or not at all. Lifetime mortgages offering a fixed rate for life come with embedded protections that are not available with RIOs or mainstream mortgages such as certainty of tenure and a no negative equity guarantee.
Speaking at the Later Life Lending Summit, Emad Aladhal, director of retail banking at the FCA, said: “One of our priorities is to help consumers navigate their financial lives, and that includes how they use the assets they hold. We are already making changes. We are consulting on retirement interest-only affordability, because we believe this product could play a larger role.”
“This summer, we will hold workshops to help explore what it would take to make more holistic advice a reality. We are ready to listen. So come and talk to us.”
