The Financial Conduct Authority (FCA) has at last lifted the requirement for Equity Release lenders to undertake affordability assessments for Lifetime Mortgages, where interest payments are required or anticipated, providing the specific scheme allows the borrower to convert to an interest roll up facility at any time. This change follows months of pressure from the mortgage industry.
Until April 2016, would-be borrowers who own their property were required to pass affordability assessments for Lifetime Mortgage products when interest payments were required or anticipated, despite the fact that the products carry little risk of repossession or arrears when payments are missed (as long as the roll up interest option is available).
What is a Lifetime Mortgage?
A Lifetime Mortgage is a loan taken out against a property you own and live in. The amount you borrow is secured against your property and repaid in the event of a sale or the owner’s death. Most Lifetime Mortgages are sold with a “no negative equity guarantee” which means that, even if the value of the loan exceeds the proceeds of the eventual sale of the property, next of kin and beneficiaries will not be required to make up the difference in the event of the borrower’s death.
Interest is charged and can be paid in regular instalments or “rolled up” into the total value of the loan at the end of the loan period. Some lifetime loans include the option for conversion to a roll up loan, which means that even missed payments carry very little risk of repossession or arrears, as the total amount will be collected when the loan period is complete.
Affordability Assessment Changes
As there is no risk to borrowers, affordability assessments on roll up interest Lifetime Mortgages have now been scrapped. This will make it easier for property owners to source and use Lifetime Mortgages, as there is no longer a barrier to their use based on a borrower’s income or credit history – everything hinges on the value of the property.
So will this update to the rules mean more Lifetime Mortgages? It’s highly likely. With better access to these products, many lenders believe they will be able to offer a more convenient, customer-focused service.
Have you been turned down for a Lifetime Mortgage after failing an affordability assessment? Will this change to the rules make you reconsider making use of this product?