FCA Sounds Alarm Over Unsuitable Equity Release Advice
Red flags and alarm bells have been raised by the Financial Conduct Authority (FCA), who have discovered that some mortgage advisors were giving questionable advice to clients.
The regulator has announced it will be carrying out a more detailed review of advice in the lifetime mortgage market as part of its ongoing investigation into mortgage intermediaries.
The FCA published a review last week, on 17 June, which warned of “three significant areas of concern”, where mortgage advisers were not acting in the best interest of their clients.
The reasons for clients wanting to embark in equity release weren’t properly looked into by advisers, who were unable to evidence their recommendations.
Jonathan Davidson, executive director of supervision for retail and authorisations at the FCA, said deciding to enter into a lifetime mortgage was a “big decision with a big financial impact” for consumers, but the suitability depended on personal circumstances.
Jonathan Davidson said:
“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.
“We’ve continued to engage with firms where we had concerns and, as part of our ongoing supervision of mortgage intermediaries, we will be carrying out more detailed follow-up work into the suitability of advice in the lifetime mortgage market.”
The FCA said:
“Poor quality advice in this market is unacceptable and is likely to create significant harm for customers who may be vulnerable.
“Where we find breaches of our rules we will, in line with our general approach to supervision, take the necessary supervisory action.”
Although, the review wasn’t a fully grim read, as it showed cases where lifetime mortgages were working well and unlocking equity for those clients who couldn’t afford a traditional mortgage.
David Burrowes, Chairman of the Equity Release Council commented:
“The FCA’s report found that equity release is ‘working well for many consumers’ by helping to meet important social needs, from boosting retirement income to funding home improvements, repairs and adaptations.
“We will continue to work with members and the wider market to make sure this is a universal characteristic, by developing and embedding best practice standards which we would like all firms to sign up. For context, equity release makes up fewer than 2% of complaints about home finance products and, of 38 complaints made to the Financial Ombudsman Service in the last year, only two were upheld.
“The combination of FCA regulation and Equity Release Council standards provides three levels of protection for customers, including independent legal advice alongside regulated financial advice and clear product safeguards. The requirement for customers to receive independent legal advice is unique among mortgages and helps to ensure customers understand the product and are under no duress or coercion to enter into the contract.
“It is vital that customers are supported to consider both long- and short-term needs when deciding whether equity release is right for them, as well as potential alternatives now and in future. The FCA’s findings will inform our ongoing work to support advice standards across the market.”