FCA uncovers misleading later life mortgage promotions

15th September 2023

The Financial Conduct Authority (FCA) has forced lenders offering lifetime mortgages to withdraw or change over 400 misleading promotions.

A market review by the regulator found that sales of these mortgages often did not meet expected standards. The review identified a number of bad practices, including companies promoting the benefits of their products without mentioning the risks. The FCA has required the firms which fell short to improve the quality of their advice.

The review looked at firms responsible for around half of all lifetime mortgage sales. It found in many cases advice did not meet the standards expected. For example, a lack of evidence that sufficient consideration of consumer’s individual circumstances had been given and advice lacked discussion of alternatives.

The FCA has required those firms which fell short to improve the quality of their advice. The FCA is driving significant improvements in processes to ensure advice is personalised and shows consideration of customers’ circumstances. The majority of firms in scope of the review also changed how their advisors are incentivised. Anyone who believes they were poorly advised can complain to the firm and, if they are dissatisfied with their response, to the Financial Ombudsman Service.

Sheldon Mills, Executive Director of Consumers and Competition, said “Releasing money tied up in your home later in life is a big decision and can have a financial impact on consumers and their families well into the future.”

“Our review led to the largest later life mortgage firms making improvements to their sales and advice practices, and almost 400 promotions have been removed or amended where firms have identified issues with them. We expect all firms to assure themselves they comply with existing rules and guidance and higher standards under the consumer duty.”

Leon Diamond, CEO and Founder at LiveMore said “We wholeheartedly welcome the FCA’s report into the lifetime mortgage sector, which highlights practices in the industry that deserve the regulator’s attention.”

“The effect of compound interest on a lifetime mortgage is significant, especially in a high interest rate environment, making this form of finance expensive if a mortgage is held for many years. So, if a standard mortgage is affordable, that is usually the best outcome for the customer and there is an easy way to find that out.”

“We are firmly of the view that an affordability assessment should be undertaken, in all cases, before any decision is made about going down the route of a lifetime mortgage.”

“A fundamental part of an advisor’s role is to fully understand the income and outgoings of customers. This provides a clear picture of whether they can afford monthly mortgage repayments and should be the first option to consider. If an interest-only or a capital and repayment mortgage is not affordable then a lifetime mortgage could be the second option.”