Financial Conduct Authority (FCA) proposals to overhaul lending criteria for retirement interest-only mortgages could be more significant than some think, a broker claims.
The City watchdog’s consultation on widening mortgage access, published yesterday (June 9), mentioned aligning affordability assessments for retirement interest-only mortgages with standard joint mortgage criteria as part of plans to improve access to home loans for groups such as the self-employed and those with variable income.
But Nicholas Mendes, mortgage technical manager at John Charcol, said while the retirement mortgage changes may appear like a “technical adjustment,” in practice it could “meaningfully widen access” for older borrowers when it comes to downsizing.
He said: “Product availability is a genuine barrier to downsizing and one that is underweighted in the current debate.
“Stamp duty is a visible, tangible cost and easy to point to, but if a borrower cannot access suitable lending in the first place, no amount of stamp duty reform will move the needle. Both issues are real and both need to be addressed on their own terms.”
The FCA has proposed removing guidance that currently means lenders assessing the affordability of a retirement interest-only mortgage with joint borrowers have to consider the ability of a single borrower to continue making the required payments if the other person dies.
Instead, firms would be able to consider applications more flexibly, based on their risk appetite and in line with mortgage conduct rules and the consumer duty.
Mendes said: “The existing requirement to always stress-test sole affordability on the death of a joint borrower has, in practice, restricted access for couples who might otherwise qualify.
“There will be those who argue this creates risk, and that looser rules could lead borrowers into unsustainable commitments that affect their financial security in later life.
“That is a fair challenge, but the greater risk right now is a market that continues to underserve a growing cohort of borrowers through rules designed for a generation with a very different financial profile.”
He added that older clients should not get too excited yet as the FCA reforms will not help anyone today.
Mendes said: “The consultation closes in July, and any rule changes will take time to implement.
“Older borrowers facing a maturing interest-only mortgage, a relationship breakdown, or the need to downsize cannot afford to wait for the regulatory landscape to shift. Independent advice now, rather than later, could make a significant difference to the options available.”
Marc Shoffman is a freelance financial journalist