Time to Rethink Lifetime Mortgages? A New Approach for Later Life Lending

A recent discussion highlights a possible shift in how brokers could approach lifetime mortgages to ensure consumers are not only informed but protected. This fresh perspective calls for a deeper examination of customers’ financial situations, advocating for a practice that might seem obvious yet is often overlooked: considering income in lifetime mortgage recommendations.

Edward Payne, from Clifton Mortgages, highlighted a significant oversight in the current approach to lifetime mortgages during a podcast appearance. Payne emphasised the importance of foreseeing potential harm to clients as a central aspect of Consumer Duty—a principle aimed at ensuring customer welfare. He pointed out that while affordability has been the guiding principle in mortgage lending since 2008, ensuring that customers have enough income to cover their mortgage, this scrutiny often does not extend to lifetime mortgages in the same way.

Lifetime mortgages offer a unique flexibility in that customers can opt whether to pay the interest on their loan. This optionality has led some brokers to sidestep income verification if a customer decides not to pay the interest. Payne criticises this practice as “madness,” arguing that it neglects the broker’s responsibility to explore and present alternative products that might better suit the client’s financial situation.

Innovation and Choice

The conversation also touched on the innovation within the lending sector, which has seen the introduction of products like retirement interest-only (RIO) mortgages. These products cater to older clients and offer alternatives that might align more closely with their financial capabilities and needs.

Michael Craig, of Brilliant Solutions, reinforced the notion that offering clients a choice is paramount. For every equity-release case, Craig expects to see at least two options presented to the client: a traditional equity-release option and, if viable, a RIO option. This approach underpins the essence of Consumer Duty, ensuring clients are supported, informed, and aware of what they are getting into.

Holistic Advice – A Regulatory Expectation

Both Payne and Craig underscored the importance of holistic advice, which involves considering every possible option for the client’s unique situation. This comprehensive approach is not just a best practice but is seen as a directive from the Financial Conduct Authority (FCA). Brokers are encouraged, if not skilled in certain areas, to seek out specialists who can offer the breadth of advice needed.

Moreover, the dialogue around lifetime mortgages extends beyond the initial consultation. Payne highlighted the importance of ongoing customer contact and regular reviews. While acknowledging the time constraints brokers face, he suggested automated communications as a means to maintain contact and ensure clients know support is available should their circumstances change.

A New Standard in Mortgage Advice

The discussion reflects a broader industry move towards more responsible and client-focused mortgage advice. By considering income and presenting a range of options, brokers can avoid foreseeable harm and align more closely with Consumer Duty. This shift not only protects consumers but also enhances the value and integrity of the advice provided.