ERSA comments on the Mortgage Market Review

Late last month we saw the Financial Services Authority (FSA) announce its final details regarding the Mortgage Market Review (MMR). This includes the new rules it claims will put 'common sense' at the heart of the mortgage market, of which three are particularly relevant to the Equity Release Industry.  

First, lenders are no longer required to impose the state pension age onto borrowers. A lender can now base its assessment on the customer's actual expected retirement age, taking a common sense view, and with state pension age used as a default only if the actual retirement age is not known. With an increasing number of people opting to work beyond the age of retirement, this change ensures they retain the same opportunities as younger borrowers.

Second under the new rules "there is no reason why older customers cannot obtain a mortgage", and no age limits to prevent lending to older consumers. Similarly, this will aid the eradication of age discrimination against borrowers. Together these rulings may mean we end up with more borrowers carrying more mortgage debt into retirement, which could result in more people looking to equity release once they eventually stop working.

Third, all equity release customers must go through an advised-sale process even if they then choose to go down the execution-only route. Although, the MMR also noted: "Due to the high standards imposed by the trade body we do not expect many equity release sales to be execution-only".

As part of its high standards, the Equity Release Council's Code of Conduct insists all lenders give customers the right to an independent solicitor of their own choice to conduct their legal work. Before choosing an equity release plan it is vital people take independent legal advice from a solicitor who fully understands the market, as they will only sign a certificate to say their client fully understands the risks and benefits of the plan once they are fully satisfied this is the case.

As such ERSA fully supports Andrea Rozario, the Director General of The Equity Release Council, who issued a statement saying that with regard to changes for the equity release market the MMR announcement is excellent news, adding the Council is delighted the FSA has listened to the industry and has enhanced the clear provider guidelines. 

With a rapidly aging population, the equity release market is likely to continue to grow in the future and the MMR will help ensure this process is in the best interests of all those who take out products. Although many of the rules set out by the MMR were already in practice in the industry prior to the announcement, the official seal of approval will hardwire these into the system and help publicise how the system ensures it is the right decision for borrowers. Overall, we believe MMR marks a very definite step in the right direction. 

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