FCA to clamp down on equity release market amidst rising mis-selling concerns
On 6th September 2023 the Financial Conduct Authority (FCA) published their review of the equity release market. Equity release mortgages are complex financial products which are often sold to elderly and vulnerable customers.
The FCA, therefore, considers that it is essential that customers are fully informed and receive suitable advice which considers their individual circumstances.
The findings of the FCA’s report
The FCA looked at both financial promotions of equity release products and the suitability of advice received by consumers.
The report uncovered that over 400 financial promotions of equity release products were misleading or inaccurate. There were promotions which did not fully explain the downside risk of taking an equity release product. Consumers are particularly influenced by promotions in the equity release market and the FCA’s review led them to direct the removal or amendment of the offending promotions.
In respect of the advice received by consumers on equity release, the FCA had previously emphasised that to deliver suitable advice advisers needed personalize their advice to the consumer’s particular circumstances, challenge consumer assumptions, and have evidence of the suitability of their advice. The FCA found in their recent review that firms were not acting on their recommendations. They found evidence in the industry of many examples of intermediaries who were poorly considering borrowers income and expenditure, minimising discussions around alternatives, incentivising sales over good quality outcomes for consumers, and steering outcomes in favour of lifetime mortgages. The FCA confirmed that many of the firms contacted as part of their review have made changes to their advice process to mitigate the FCA’s concerns and have changed how advisers are incentivised.
When might a consumer have been mis-sold an equity release product?
However, despite firms making changes to the advice process, it does mean that consumers could have been sold equity release products which were not suitable to their needs at the time. So, when might a consumer have been mis-sold an equity release product?
Most cases will involve the selling of a lifetime mortgage product. A lifetime mortgage is where the borrower takes a loan secured by a mortgage over their property. Unlike a normal mortgage, the borrower does not have to pay anything back until the property is sold when they die or go into care. A lifetime mortgage will attract compound interest, which means interest accrues on any interest already incurred on the capital sum borrowed. This means that lifetime mortgages are very expensive products and borrowers can end up owing much more than they expected. If a borrower lives a long retirement after entering into the product, it could mean that all of the equity in the property is exhausted by the interest compounding leaving little or nothing to leave to love ones (it should be said that a lot of lifetime mortgage products do come with no negative equity guarantees so the borrower (or their estate) will never owe more than the available equity from the property).
A lifetime mortgage may have been mis-sold in the following circumstances:
- The adviser failed to properly explore the consumer’s individual circumstances and the reasons why the person wanted to access the equity in their home. Quite often, the person wanted to access some money for relatively minor expenditure, such as going on holiday or buying a second-hand car, and that expenditure could have been financed using a much cheaper product than a lifetime mortgage.
- The adviser failed to explore other products which might be available which could have met the consumer’s goals. For example, could the consumer have been able to afford to service an interest only retirement mortgage?
- If the product was a drawdown lifetime mortgage (where the borrower can draw down sums of money as and when needed, rather just receiving one lump sum) with a variable interest rate, did the adviser explain that the interest rates might not be guaranteed and could change for when different sums are withdrawn?
Contact us today
If you think that you have been mis-sold an equity release product, then you may be able to make a complaint to the Financial Ombudsman Service. For more information on the equity release market or for advice regarding other financial mis-selling claims, please contact us online.