This week, the Financial Conduct Authority (FCA) published a comprehensive discussion paper on how to reshape mortgage lending and advice.
Its Mortgage Rule Review made recommendations to change the way mortgage affordability is tested, as well as suggestions to scrap five-year fixed rates, and whether more interest-only borrowing should be encouraged.
Too much caution in mortgage lending
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association (BSA), said it was clear that since the financial crisis, the “regulatory pendulum” had “swung too far towards caution”.
Broadhead said this had been done at the “expense of access” to homeownership for creditworthy people, and welcomed the regulator’s proposals.
He said, along with the government’s promised long-term housing strategy, “this review provides a crucial opportunity to shape the UK mortgage market for the next decade and beyond”.
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The BSA will engage with members and consider its response, Broadhead said, predicting it would spark some “very lively discussions”.
Still, he said it was important not to jeopardise the confidence and trust that had been built in the mortgage market, while attempting to be “radical and ambitious”.
Broadhead added: “We must be mindful of the way people live today and ensure that all proposals are future-proofed. Wide-ranging reviews of the mortgage market are rare, so this is potentially a once-in-a-generation opportunity. The outcome of both this review and a supply-side plan from the government must together create an environment where homes are more affordable, more available and more appropriate to the needs of those who will live in them.
“It is incumbent on us today to contribute to the design of an innovative, flexible and sustainable mortgage market that meets the needs of current and future generations.”
Later life lending ‘no longer niche’
Other industry commentators focused on the FCA’s proposal to make it easier to innovate in the later life mortgage space, and potentially mandate equity release qualifications.
Dave Harris, CEO of More2life, said the fact there was a dedicated chapter to later life lending showed it was “no longer a specialist niche sector” but a “vital and growing part of the mortgage market”.
He added: “The regulator is absolutely right to highlight that more borrowers are now likely to carry mortgage debt into retirement, and that lending into later life must be supported by the right product innovation, regulatory framework and advice.
“For the market to truly scale, we need broader commitment, greater competition and regulatory support that fosters innovation rather than friction.”
Harris said this would require an environment where lenders were also willing to match More2life’s own investment and commitment to the market, even in challenging times.
Jamie Jenkins, policy director at Royal London, said the focus on the role of later life lending showed this “may need to change in future, with many people having insufficient pension savings and turning to the equity in their home to supplement their retirement income”.
Jim Boyd, CEO of the Equity Release Council, said: “To help people better navigate their financial lives, we need to ensure that people understand their options and have the products and protections in place to make confident choices.
“Not only does this discussion have the potential to benefit older borrowers, but also younger consumers, as typically one in four releases involves some gifting to family, usually to help children onto the housing ladder as first-time buyers, or to pay off debt.”
No more advice silos
Harris said he also supported the regulator’s interest in “breaking down the entrenched silos that exist between mainstream mortgage advice and later life lending”.
He added: “The idea of wider, even mandatory, use of the equity release qualification is a positive one. The reality is that too many consumers are missing out on potentially life-changing financial options because their adviser isn’t qualified or authorised to discuss and recommend them.
“An enhanced advice model, where more advisers can confidently consider later life lending solutions, will deliver better outcomes for older borrowers and help address some of the wider societal challenges the paper rightly highlights – from pension under-saving to retirement insecurity.”
However, he said advisers also needed support to be empowered to take this on, as they would need “confidence, clarity and capability”.
