FCA set to bring back retirement interest-only mortgages – Mortgage Strategy, interest only mortgages.#Interest #only #mortgages

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Interest only mortgages

The FCA is set to bring back retirement interest-only mortgages to help older borrowers, according to a consultation paper.

The regulator says it has found a regulatory barrier to helping older borrowers with maturing interest-only mortgages and those wanting to release equity from homes without interest roll-up.

The FCA lumped retirement interest-only mortgages together with lifetime mortgages as part of implementing the Mortgage Credit Directive, effectively calling both lifetime mortgages .

The FCA is now proposing to split the two sorts of loans out again.

The two products differ, mainly because pure retirement interest-only mortgages have no interest roll-up, require a less detailed sales process and need less advanced qualifications to sell.

At the time of the MCD there were no retirement interest-only mortgages on the market.

But as a wave of interest-only mortgages have neared maturity since the MCD was implemented, firms have been calling on the FCA to let them sell retirement interest-only loans again.

Firms told the FCA the classification was a barrier to them providing these types of mortgages.

The FCA consultation says: We are revisiting this position because it may be restricting consumer access to retirement interest-only mortgages. For example, firms may be reluctant to complicate systems and staff arrangements set up for standard mortgage lending.

The regulator adds: Retirement interest-only mortgages have significantly different risks compared to lifetime mortgages. In particular, they do not feature the roll-up of interest, meaning that consumers are not at risk of rapid equity erosion and the subsequent reduction of funds available for a bequest.

Consumers are also more likely to be familiar with the product features of a mortgage involving interest payments.

But the regulator adds that it is proposing to add extra strings to any reintroduction of pure retirement interest-only mortgages.

For example, the FCA wants to amend MCOB rules on acceptable repayment strategies to include the sale of a property when certain life events occur.

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