FCA proposals to improve access to later life lending products for older borrowers are ‘positive’ and ‘pragmatic’, but the potential changes to Retirement Interest Only (RIO) mortgages could increase the risk of foreseeable harm and put further emphasis on the importance of holistic advice, Key Equity Release, the UK’s leading equity release adviser, says.
CP28/18, which is open to consultation until July 28th, sets out plans for removing the surviving spouse affordability test on RIOs as well as measures to support increased access to mortgages for first-time buyers and the self-employed.
Key believes the changes to affordability requirements on RIOs should be viewed positively in terms of opening up more options for borrowers and advisers.
But it believes the sequencing of any changes should be considered carefully, given ongoing work by the FCA in the later life lending market and the parallel focus on holistic advice and addressing distribution silos. Key says the emphasis for the regulator should be on the low uptake of RIOs and lifetime mortgages generally, and that the changes proposed in CP 26/18 are unlikely to make a significant impact in this regard.
Data in the consultation paper shows sales of RIOs in 2025 to over-55s borrowers totalled just 3,002, while lifetime mortgages achieved 26,974 sales. By contrast, sales of mainstream repayment mortgages were nearly 300,000 and interest-only mortgages nearly 65,000.
Key is urging all participants in the later life lending sector to work with their trade bodies to provide feedback to the FCA on the plans.
Will Hale, CEO of Key Equity Release, said:
“Ensuring that all older customers get to the right outcome requires all later life lending options to be considered and this is where holistic advice is vital.
RIOs and lifetime mortgages currently make up just 8% of residential mortgage sales to the over 55s. This cannot be right, given the features and benefits offered by these products and our understanding of the wants and needs of older customers. The product outcome a customer receives remains a lottery based on where they happen to enter the advice ecosystem. It is these distribution challenges that the FCA need to address.
Innovation in the lifetime mortgages space now sees products that allow interest to be served in full, in part or not at all. Lifetime mortgages offering a fixed rate for life come with embedded protections that are not available with RIOs or mainstream mortgages such as certainty of tenure and a no negative equity guarantee.
Assessed side by side with other later life lending products as part of a comprehensive advice process, modern lifetime mortgages, perhaps with interest payments being made to limit equity erosion, can deliver the most suitable outcome in many situations.
RIOs and mainstream mortgages may offer a lower cost of borrowing, but this should be just one consideration in the advice process, and eligibility on the basis of affordability shouldn’t be confused with suitability when there are alternative options available.
Where the proposed RIO changes under CP 26/18 should make a significant difference is for those customers whose age and borrowing requirements put them beyond lifetime mortgage LTV constraints. Therefore, this is a positive move from the FCA as long as it is accompanied by a commitment to ensure that all products are considered for all customers over the age of 55.
It is very welcome that in this consultation paper the FCA again acknowledges that many are under-saving for retirement and that housing wealth needs to play a central role in supporting people’s financial goals in later life.
Furthermore, by outlining how follow-on products from interest-only mortgages such as RIOs and lifetime mortgages might be considered credible repayment strategies, the regulator is expressing an acceptance that that people will need to borrow into later life and that paying-off mortgage debt is not a realistic, or indeed optimal, objective for many.
This consultation paper is another clear signal that later life lending is moving firmly from niche to norm and mainstream mortgage advisers, irrespective of qualifications or scope of proposition, cannot ignore products such as RIOs or lifetime mortgages if good outcomes for customers are to be achieved.”
