FSA warns over lifetime mortgage advice

The Financial Services Authority has written to firms urging them to ensure their lifetime mortgage advice meets required standards ahead of another market review in late 2007, reports IFAonline.

The letter follows mystery shopping and thematic reviews in 2005 and 2006, which found cases of “unacceptable” advice standards, particularly in firms which transacted low volumes of lifetime mortgage business.

The FSA says lifetime mortgages must be fairly sold to customers who have a clear appreciation of the risks and benefits associated with the product.

It states: “We expect this letter and actions taken by senior management will lead to an improvement in the quality of advice provided. We will review the situation at the end of 2007 and consider whether any further regulatory action is appropriate.”

Key issues which firms may wish to consider include:

• Are advisers putting clients in the position of fully appreciating all the implications of entering into a lifetime mortgage?
• The impact a lifetime mortgage may have on a client’s entitlement to means-tested benefits;
• Where the client is releasing equity for home improvements, has consideration been given to the availability of local authority or other grants/loans?
• What impact will the lifetime mortgage have on the client’s tax position?
• Is the size of any proposed ‘rainy day’ fund reasonable for the client’s circumstances and does the client appreciate the financial implications and risks of borrowing money to invest and/or place on deposit?

The FSA adds: “There is no place in this market for firms that do not develop the necessary skills and do not implement appropriate systems to ensure that they give suitable advice. We expect firms to commit to delivering quality advice or refer the business to firms that have done so.”

Sixty Plus comment: This highlights the need for IFAs to focus on Equity Release properly if they are to advise in this market at all. With Home Reversion Plans become regulated from April, there will be increased scrutiny. IFAs wishing outsource their Equity Release enquiries can contact Sixty Plus at http://www.sixtyplusonline.co.uk/equity-release-advisers-1.htm

At Sixty Plus we have dedicated systems for fact finding, research and report writing to ensure our advice is robust.