In an effort to widen the product range available in the later-life lending sector, retirement interest-only mortgages will now be treated as standard mortgages by the Financial Conduct Authority (FCA).
This will mean that they will no longer be regulated under equity release standards.
A consultation paper released last year by the regulator outlined proposals to bring back retirement interest-only mortgages; these were redefined as lifetime mortgages.
From today, as set out in the FCA’s handbook notice, the definition of a lifetime mortgage will no longer include retirement interest-only mortgages.
Instead, they will be defined as a separate mortgage for older consumers. Repayment of the loan will not be sought until a particular life event has occurred e.g. transition into a residential care home.
The FCA also state that the sale of the retirement interest-only mortgage will be reserved for customer over a certain age.
Setting out the aims of the changes, the Handbook states that the intended effect is to “improve access to mortgage borrowing for older consumers with reliable retirement incomes, including some of those with maturing interest-only mortgages but who do not have sufficient funds to fully repay”.
The regulator said: “We envisage retirement interest-only mortgages as an additional option alongside downsizing or equity release, not just as a solution for customers with maturing interest-only mortgages. A retirement interest-only mortgage will not be the default option for customers with maturing interest-only mortgages and, as with all lending, the decision to offer these mortgages will be a commercial judgement.”
