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FCA begins exploratory review of equity release

Out-Law News | 10 Jan 2020 | 2:37 pm | 1 min. read

The Financial Conduct Authority (FCA) is in the early stages of a review of equity release and mortgage lending to older borrowers, it has indicated.

The regulator told This Is Money that it is conducting "exploratory works" in order to better understand the market and the risk of harm to older consumers. It has contacted 13 firms so far as part of that work, it said.

Financial regulation expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law, said that the reports were consistent with the regulator's work focusing on consumer protection and good consumer outcomes.

"With the growth in the take up of equity release products, it is not surprising to hear that the FCA has taken initial steps to look at this part of the market," he said.

Barber Andrew

Andrew Barber


With the growth in the take up of equity release products, it is not surprising to hear that the FCA has taken initial steps to look at this part of the market.

"PPI is still undoubtedly still fresh in its mind and with the historical problems with endowment mortgages, the FCA is likely to want to understand how the market operates. It will want to ensure that consumers have good outcomes when they take out an equity release product," he said.

Equity release products allow those aged over 55 to access some or all of the value of their home as cash. One of the most common forms of equity release is a lifetime mortgage, repayable from the value of the estate after death or when the property is sold.

The popularity of equity release products is growing, according to figures from industry body the Equity Release Council. Homeowners obtained £988 million worth of funding from their property between July and September 2019, in what the Equity Release Council referred to as the market's "busiest quarter of 2019 to date". Over 33,000 new customers had taken out an equity release product by the end of September, it said.

Money drawn down through equity release is used for a range of purposes including supplementing pension income; supporting family members; making home improvements or age-related adaptations; paying off existing mortgages or other debt; and meeting other regular or one-off expenses, according to the Equity Release Council.

"While the scope of the FCA exploratory works is unclear, firms may want to look at issues such as their identification and treatment of vulnerable customers, customers' information needs and the scope and nature of advice given to borrowers," Barber said.

"Even though no one will want to be the first to approach the FCA with a problem, proactively identifying and remediating any issues will ultimately put a firm on a stronger footing than simply being reactive to FCA enquiries. Providers of equity release and lifetime mortgage products should take the time now to review their back books and identify any potential issues," he said.