Firms need to do more to ensure they alway provide “appropriate advice” to equity release consumers, says the FCA.
The FCA’s review found equity release was generally working well for many consumers but the regulator highlighted three significant areas of concern which are increasing the risk of harm to consumers:
- Advice given by firms did not always sufficiently take into account consumers’ personal circumstances
- Consumers’ reasons for looking at equity release were not always challenged by firms
- Firms were not always able to evidence that their advice was suitable.
The FCA said that equity release often had a major impact on the financial wellbeing of users and affected the rest of their lives.
It found some of the costs can be “less obvious but significant.”
It cited the example of the cost of compounding interest over a long period of time. This could be an expensive way to meet a short term borrowing need.
The FCA was also concerned that the advice given to take out equity release products could not always be shown to be in the best interests of all consumers given their personal circumstances.
In light of Coronavirus, the FCA said it was more important than ever that advice on equity release took into account consumers’ individual circumstances.
The review was undertaken by the FCA as part of exploratory work on later life lending for over-55s, some of whom may be more vulnerable.
The FCA’s executive director of supervision, retail and authorisations, Jonathan Davidson, said: “Deciding to enter into a lifetime mortgage is a big decision with a big financial impact for consumers. In many instances it makes sense but whether it does or not depends on personal circumstances and how they might change.
“It is therefore critical that advice offered to consumers looking at lifetime mortgages is suitable to their personal circumstances. It is clear from our review that advice being offered to such consumers, including some vulnerable consumers, is still not up to scratch.
“All firms offering these products should read our review and take action to make sure consumers are receiving advice tailored to their personal circumstances.”
The FCA has engaged with firms where it had concerns and will be carrying out more detailed follow-up work into the suitability of advice in the lifetime mortgage market.