Despite the fact that new mortgage applications are way down on where they were prior to the credit crunch and at a time where the Government is actively trying to encourage more lenders to keep the mortgage market moving, in their strange wisdom, the Financial Services Authority (FSA) have decided that it is a good time to contrive a list of new reforms aimed at the mortgage market. This is also likely to have some sort of impact on the equity release UK industry.
To be fair and for the most part, the FSA are trying to ensure that residential mortgages are only ever offered to applicants that can realistically afford such a financial commitment in the first instance. After all, is this not a huge part of the reason for the worldwide banking crisis back in 2008? We obviously need to learn through our mistakes in the past and ensure that they are not repeated in the future – so no matter what the state of the economy may have been today, it is highly likely that these new reforms would have been implemented whatever.
Where equity release schemes may be affected most in the future will be the new reform that stipulates that all new mortgage applicants are to be offered full mortgage advice whenever they are looking to take out such a product. The reforms do not go as far as suggesting that this advice ought to be followed: merely that full advice should be furnished to each and every applicant at the time an equity release product is sought.
The reason that mortgage advice will be compulsory for applicants looking into equity release plans is the fact that such clients are labeled as being ‘vulnerable’ by the FSA. This is most likely going to be due to the ages involved in taking out such a policy: bearing in mind that the minimum age is around 55 years of age for the majority of lifetime mortgage equity release plans.
Investigating the potential impact of these reforms further, it is estimated that as many as one million people could be denied a mortgage based on the proposals that have been put forward by The FSA. This comes at a time where people are already struggling to get on the first rung of the housing ladder and therefore this really is not a helpful statistic at the moment. Most lenders have already tightened their belts where mortgages are concerned and have withdrawn many products (e.g. the 100% mortgage) from sale.
Over the last year, the Government has tried to provide some kind of financial assistance for people struggling to get into the housing market. However, many people believe that it is not fair to rely on tax-payers’ money to assist such people; this is a typical example of the Government’s refusal to take the bull by the horns, where the banking industry is concerned, and instead they choose to skirt around all issues.
If you have been considering the myriad benefits of equity release schemes, it is important not to let the reforms from the FSA put you off in any way shape or form. As per usual, if you will be obliged to receive full mortgage advice, as with most things in life, this will merely be ‘lip-service’ and don’t forget that it is entirely up to you whether or not you decide to go ahead with the information given to you. At the end of the day, use this information to your own advantage as it can never hurt to be even more knowledgeable on the equity release deals in the UK market.
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