Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Solutions. Read the original article for full details.

FCA Reviews Affordability Rules for Joint Retirement Interest-Only Mortgages

The Financial Conduct Authority (FCA) is consulting on changes to the affordability requirements for joint retirement interest-only (RIO) mortgages. The proposed changes would bring RIO affordability checks in line with those for standard joint mortgages.

The FCA's Mortgage Rule Review consultation paper suggests removing the requirement for lenders to assess whether a sole borrower could afford a RIO mortgage if the joint borrower dies. According to the regulator, this change would give lenders more flexibility and allow them to lend based on their own risk appetite.

The FCA noted that sales of RIO mortgages remain low compared to lifetime mortgages, despite demand from older borrowers. Lenders have told the regulator that the current guidance is too restrictive. The FCA said that removing the guidance could reduce the number of people taking out lifetime mortgages or standard interest-only mortgages with terms extending into later life. It also stated that this would address concerns about what happens when a loan matures.

The regulator acknowledged that some lenders may worry about the risk of financial difficulty or arrears if the surviving borrower cannot repay the mortgage. In such cases, lenders can consider the surviving borrower's ability to continue repayments, including any future income such as a spousal pension.

The FCA reported that arrears in RIO mortgages are “extremely low”, accounting for less than 1% of accounts. UK Finance data showed a rise in RIO sales in the first quarter of this year, but the total number of loans remains small, at 353.

These proposed changes may be relevant to letting agents and inventory clerks monitoring trends in later life lending and the evolving mortgage landscape for older tenants and landlords.