UK regulator curbs misleading promotions of lifetime mortgages

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The UK’s top financial regulator has forced lenders offering lifetime mortgages to withdraw or change more than 400 misleading promotions, after a review uncovered widespread issues with how the products were being sold.

Lifetime, or later-life, mortgages are the most popular way for homeowners to release equity in their properties, with sales jumping 28 per cent to £5.2bn in 2022, according to official figures.

But the Financial Conduct Authority said on Thursday that its review had found that “in many cases”, sales of the products “did not meet the standards expected”, including considering whether they were appropriate for customers’ individual circumstances.  

The watchdog said it had “required those firms which fell short to improve the quality of their advice” and that “the majority of firms in scope of the review also changed how their advisers are incentivised”.

Equity release allows homeowners to take out money against the value of their property while remaining in it, with loans repaid from the sale of the property only when the borrower dies or moves permanently into a care home.

The FCA said it had identified bad practices, including companies touting the benefits of their products without any balancing description of the risks and incentivising sales at the potential expense of the quality of advice.

Natalie Bradley, partner at solicitors Stephensons, said her firm had seen persistent problems with later-life mortgages and that many elements of the products could be overlooked by borrowers, including high repayments and convoluted terms and conditions.

“Clients must also understand how the equity release can bind them in place, as they may not be able to transfer to another property if they wanted to move at a later point,” she said.

A previous FCA review in 2020 warned that customers could suffer “major harm” if offered unsuitable advice, including younger people not being told about traditional mortgages, which would be cheaper and more flexible.

“The decision to take out an equity release deal is a big one for consumers to make, and some of those doing so now may feel that they have little choice amid the worst cost of living crisis in decades,” said Sam Richardson, deputy editor of consumer magazine Which? Money.

“It is right that the FCA is taking the supervision of the market seriously, and firms that fall below the required standards should expect to face tough action quickly.”

Under the FCA’s consumer duty, which came into effect at the end of July, banks and other financial services companies are required to deliver “fair outcomes” to consumers and document how they have achieved this.

In line with the new rules, the regulator said lifetime mortgage advisers must disclose alternative options to customers, implement measures to manage potential conflicts of interest and review the outcomes of their equity release decisions.

Jim Boyd, chief executive of the Equity Release Council, a trade body representing the sector, said that it supported the FCA’s engagement with lifetime mortgage providers.

“The council and our members are undertaking significant work to reinforce advice standards and ensure clear customer communications,” he said. “We wholeheartedly support the new consumer duty and will continue to work with the regulator, members and wider industry to take every opportunity to improve customer experiences.”