Among other things, the FCA's Discussion Paper 19/2: Intergenerational Differences highlights the benefits of property wealth as society ages. For existing homeowners, housing wealth can be unlocked through later life mortgage lending to supplement retirement income, pay down existing debts or gift to younger generations.  

But what is later life lending? The FCA's regulatory framework treats lending to those aged over 55 in a variety of ways, resulting in differences in the advice given to customers, assessments of affordability and ability to switch. 

The transition to retirement is taking longer. UK Finance data shows that in quarter 1, 2019 77.5 per cent of borrowers aged 55 to 60 were employed. 58.5 per cent of borrowers aged 60 to 65 were also employed. This shows that those seeking mortgage lending in later life have employment income for longer. This means that ?younger? older borrowers have the potential capacity to service loans. At the same time, the younger end of the market is borrowing for longer. The increase in 40-year mortgage terms means that some younger borrowers are ultimately borrowing into retirement.

Both factors, employment income and mortgage term lengths, mean that there is no longer a clear-cut boundary between later life lending (i.e. to over 55s) and ?prime? lending in practice, despite the distinction between the two within the regulation. In our response to DP19/2, UK Finance suggests that the FCA and PRA work together to consider the age restrictions placed on lending into and in retirement to ensure consistency in the regulation.

The later life lending market is increasingly siloed. Older people transitioning into or at retirement need to make complex financial decisions based on their expectations of longevity and health and some, perhaps limited, understanding of what income can be drawn from their assets. The existing advice framework contributes to rather than assists with this complexity. Those seeking to use housing wealth in later life will have differences in experiences based on whether they seek an equity release product, a Retirement Interest-Only (RIO) mortgage, or a mainstream mortgage (see diagram below). Notably, it is not apparent from the rules how a customer should be referred on or informed of the availability of other later life products.

The current situation means that consumers are at risk of neither receiving the best product nor the cheapest product for their needs. In our response, UK Finance also proposes several solutions that the FCA could consider to breakdown the artificial barriers that are getting in the way of achieving the best outcomes for consumers. These include:  

• bringing together the parts of MCOB that relate to lending in later life, for example, incorporating chapter 8 with chapters 4 and 11
• re-evaluating the adequacy of exam standards required for advisers
• signposting rules for any older customer, so that they are fully informed about the products and types of advice available.

It is good to see the FCA engaging on this important topic and we look forward to seeing the next stages in their thinking.