FCA Removes Affordability Assessment On Hybrid Lifetime Mortgages

7th April 2016: The Financial Conduct Authority (FCA) announced that affordability assessments would no longer be required when a later life firm was offering hybrid lifetime mortgages.

A consultation on the appropriate amendments for Mortgage Conduct of Business (MCOB) rules on hybrid lifetime mortgages will be published by the FCA in due course.

Read the full FCA statement about hybrid lifetime mortgages.

The regulator explained that these amendments could differ from its current proposals, but firms can apply to make the changes from today. The modification as announced by the FCA will be available for a year, or until any amendment is made to the rules.

Lifetime mortgages enable consumers to pay interest for a period subject to affordability rules that are based on the requirements of providers following the Mortgage Market Review in 2014.

Understanding the FCA’s statement

The FCA confirmed that the modification was created because “we do not consider that an affordability assessment is required where there is no risk of arrears and repossession in the event of missed payments”.

The modification works by “…dis-applying the requirement to carry out an affordability assessment where interest payments are anticipated or required, providing that the specific lifetime mortgage allows the consumer to exercise at any time an option to convert the product to interest roll-up.”

Product Disclosure Changes

The FCA’s modification will apply to product disclosure rules as part of the MCOB handbook. Later life lenders will also need to revise Key Facts Illustration (KFI) documents to include a description of the features and risks to apply when interest payments are being made and when they are rolled up.