Bad advice from a number of stock release advisers can cause “significant damage” to some vulnerable clients, the financial watchdog has found.
The Financial Conduct Authority has noted that freeing equity works well for many clients, but has listed a myriad of errors in the way products are sold by some companies.
Its review of share release notices released today suggests that some clients have been rushed through the advisory process without the proper verifications taking place.
Jonathan Davidson of the FCA said the regulator was “disappointed” that advisers had largely taken a “forms-filling” approach to inquiring about the financial situation of their clients.
FCA warns some customers suffer ‘material damage’ due to bad advice
Accordingly, the Advisor does not give “sufficient weight” to these circumstances.
For example, some clients have been advised not to make any monthly payments, even though they have a large surplus income. The FCA said in these cases it found little evidence that these customers understood the impact of the decision.
As a result, these owners, often very old, were allowed to build the interest into their loan rather than paying off part of it. They then have to pay interest on the loan and interest, resulting in a costly build-up of their debt that could have been easily avoided.
This is Money revealed last year that the regulator is engaging with private equity firms to help it “better understand the market to reduce any potential harm.”
This followed a series of reports concluding that financial products designed for older borrowers were not suitable for their purpose and that borrowers may in fact be directed to less suitable offers.
Today, the FCA said it had found “significant areas of concern” in the way equity release clients were treated by financial advisers.
The watchdog also found that advisers recommended changes to real estate ownership, including the removal of a co-owner of the title deeds, to allow the release of equity.
There was no evidence that there had been enough discussion about how the change in ownership would affect customers.
The advisers also accepted, without a doubt, clients not wanting to pay an upfront fee.
Interest on equity release can accumulate over the years, dramatically increasing the amount owed
The FCA found an example where, over the expected term of the loan, it would cost the client 25 times the additional interest charges, but the file did not contain any evidence as to why the charges were not prepaid.
Davidson said, “Deciding to take out a lifetime mortgage is a big decision with a big financial impact on consumers. In many cases this makes sense, but whether or not it depends on personal circumstances and how they might change.
“It is therefore essential that the advice offered to consumers considering life mortgages is tailored to their personal circumstances. It is clear from our review that the advice offered to these consumers, including some vulnerable consumers, still falls short.
“If in doubt as to whether a lifetime mortgage makes sense to you as a consumer, you should explore your personal situation in detail with your advisers or with independent sources such as the Money and Pensions Service. “
FCA found clients were persuaded to remove co-owners from title deeds in order to qualify for equity release (stock photo)
Equity liberation has exploded in recent years with £ 1.2bn in loans issued in the first quarter of this year alone, according to the latest Key Equity Release market report.
Before the FCA began its review, This is Money raised concerns that older borrowers are being recommended to release equity when more suitable financial products are available.
At the time, Lynda Blackwell, former director of the mortgage industry at FCA, warned that two in three senior borrowers who apply for a mortgage from their lender or advisor end up with a more expensive free-equity deal.
Today, the regulator said: “Poor quality advice in this market is unacceptable and has the potential to cause significant harm to clients who may be vulnerable.
“When we find violations of our rules, we will take, in accordance with our general approach to supervision, the necessary supervisory action. “
The FCA added that it is currently undertaking additional work to examine the suitability of advice in the life mortgage market.
David Burrowes, chairman of the Equity Release Council, said: “The FCA report found that equity release was” working well for many consumers “in helping to meet important social needs, of the increase. from retirement income to financing home improvements, repairs and adaptations.
“We recognize that there is work to be done to ensure this is a universal feature, but to give a bit of context, the release of equity accounts for less than 2% of complaints about real estate finance products¹ and, of 38 complaints filed with the Financial Ombudsman Service in the last year, only two have been confirmed.
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