Niche Markets

These are the key proposals in the FSA’s consultation paper CP11/31 that was released in December 2011 relating niche markets: 

Equity release

• Vulnerable consumers - in line with the FSA’s revised approach to advice, it proposes that equity release consumers will be one of the vulnerable groups who should always be advised.
• Rejected advice – consumers will still be able to reject the advice they have been given and proceed on an execution-only basis, as long as they know precisely the details of the equity release product they want.
• Scope of service – currently, the two equity release products, lifetime mortgages and home reversion plans, are regulated as two separate niche mortgage sectors. The FSA believes that the market sees these as substitutable products and we are therefore proposing to create a single ‘equity release’ market made up of both products. Treating equity release as a single market will have the effect that firms offering only lifetime mortgages or only home reversions plans will need to explain to consumers that their service is limited. They will need to explain that they offer one product but not the other.

Home purchase plans (HPPs)

• Rejected advice – the FSA propose that consumers will still be able to reject the advice they have been given and proceed on an execution only basis, as long as they know precisely the details of the HPP product they want.
• Service disclosure – with the removal of the Initial Disclosure Document, the FSA propose t to allow firms to continue including an Islamic compliance statement in their initial disclosure when they hold themselves out as providing Islamic compliant products.

Sale and rent back (SRB)

• Vulnerable consumers – given the high risk nature of these products, the FSA propose that SRB consumers should be one of the vulnerable consumer groups who should always be advised.
• Rejecting advice – in the interests of protecting these particularly vulnerable consumers, the FSA are proposing not to allow consumers to reject the recommendation given and proceed on an execution-only basis.

Bridging finance

• Defining a bridging loan – the FSA are proposing to define a bridging loan as a regulated mortgage contract with a term of 12 months or less.
• Assessing affordability – where the consumer is not required to make monthly interest payments, for example in the case of interest roll up loans, the FSA will not require a lender to determine whether the consumer can afford the monthly mortgage payments. But they must assess whether the consumer has a credible repayment strategy in place to repay the loan.
• Extending the term of a bridging loan – the FSA are proposing that lenders must, at the point the loan is extended, re-assess the consumers ability to repay and the consumer must ‘positively elect’ to do so.
• Enhancing sales standards – the FSA are proposing that intermediaries consider whether a mainstream mortgage would be more appropriate before recommending bridging finance.
• Enhancing sales standards – to ensure that a bridging loan is suitable for the consumer, the FSA are proposing to require intermediaries to consider: whether it is appropriate for the consumer to access finance quickly; and whether it is appropriate for the consumer to make regular payments.
• Service disclosure – in line with the FSA’s new proposed approach to service disclosure, the FSA propose that an intermediary only offering bridging loans must describe its service as limited within the wider mortgage market.
• Application of the prudential regime – the FSA propose to read across its approach to the enhanced prudential regime for non-deposit taking lenders to bridging finance providers.

High net worth (HNW) and business lending

• Defining a HNW consumer – the FSA are proposing to define HNW, in relation to a home finance transaction, as a consumer with a net income of no less than £1m per year or net assets of no less than £3m;
• Assessing affordability – where monthly payments are not required, the FSA are proposing that lenders will not need to assess affordability. But they must assess whether the consumer has a credible repayment strategy in place to repay the loan. Where the consumer is making monthly payments on the loan, our affordability rules will apply.
• Product disclosure – given that there are many ‘non-standard’ mortgage products designed for HNW borrowers, the FSA are proposing to extend the application of the business loan tailored disclosure rule to HNW.
• The FSA want to open up a debate about whether it should carve-out HNW and business borrowers and, rather, adopt a free-market approach, which would allow these consumers to forgo the regulatory protections and remedies that would otherwise be available.

MMR survey results

Following our campaign to encourage mortgage brokers to ‘Join the debate’ www.tcfinfo.co.uk has delivered the collective results of 2697 questionnaires to the FSA on their latest proposals in CP11/31. The feedback was delivered to the FSA ahead of the 30th March deadline, and is to our knowledge, the largest collective response on behalf of individual advisers. Commenting on the results, a spokesperson for the FSA said “We welcome the fact that mortgage intermediaries have provided valuable feedback to our MMR proposals as we have progressed through the various stages of consultation. It is important that firms make their views known and we do take their comments into account when considering any amendments. The high response rate indicates that firms have found the TCFInfo MMR survey a convenient channel to direct their views and we are encouraged by their level of involvement.”

Download full Niche market survey results (PDF)