On our later life mortgages
We’ve provided below some important information about our approach to Consumer Duty including information about our product governance processes and who our products may or may not be suitable for.
In accordance with the deadlines imposed on lenders, we’re working through our requirements under Consumer Duty and will provide all necessary information to our Distributors.
We fully support the FCA’s aims in introducing the Consumer Duty. Our consumer-centred purpose aligns with their drive to:
- improve retail market standards of conduct
- help customers make well-informed decisions.
How does the Consumer Duty affect us?
It affects us both directly and indirectly. We’re directly affected by it when we’re dealing with our own retail consumers. We’re indirectly affected by it when we work through our distribution partners, with the consumer present at the end of the distribution chain. That dual perspective gives us wide-ranging insights into both the advantages and practical challenges of the Duty.
Our group-wide Product Lifecycle Management (PLM) framework and Product Risk Review processes already incorporate elements of the Consumer Duty. We have reviewed these as well as agreeing other minimum standards to support consistency across our different business areas.
Changes to differentiate our lifetime mortgages
During a recent PLM review, we identified that our Flexible Lifetime Mortgage (FLTM), Optional Payment Lifetime Mortgage (OPLM) and Payment Term Lifetime Mortgage (PTLM) products could be more clearly differentiated.
So we changed our lifetime mortgage (LTM) target market statements and product descriptions to provide greater granularity and distinction between our products, helping advisers better understand the target market for each.
- We’ve split our core target market definitions into three sections:
- We’ve emphasised that our target market includes customers who:
- understand the impact that compounding interest will have on the value of their estate
- have considered and rejected other forms of borrowing and downsizing
- are willing to take financial advice and pay the fees associated with entry into the product.
- We’ve more clearly differentiated the two products, setting out that:
- FLTM is for people with limited or uncertain income or, who aren’t confident that they can commit to regular payments.
- OPLM is for people who have enough income to be confident that they can make regular payments covering some or all of their monthly interest, for at least some of the mortgage term.
- PTLM is for people who have enough income prior to full retirement to pass our affordability assessment to make contractual monthly interest only payments for an agreed specified term which cannot exceed retirement, after which they'll stop making these payments and instead, the interest will be rolled up and added to the amount they owe.
- When describing target customers who might choose to spend their LTM income on discretionary expenses like vehicles or holidays, we’ve stated that advisers should make sure they:
- take their personal circumstances into account
- are aware of how long interest might roll up for on their loan.
This is to provide more clarity on interest roll-up risk, when taking a product at a younger age for a longer period.
- We’ve further refined the section setting out who the product may not be suitable for by clarifying points like means-tested benefit eligibility.
- We’ve added a new sentence:
- “Customers using the product for discretionary spending early in retirement, where discretionary spending may have a greater impact on the total loan amount over time.”
Your firm should review the target market descriptions of financial products as part of your distributor advice guidance / compliance governance process. So please share this new content within your firm as needed, and amend your advice and compliance processes appropriately.
What is Consumer Duty?
Why is the FCA's Consumer Duty important?
To whom does the FCA's Consumer Duty apply?
What does the FCA's Consumer Duty consist of?
How have we been getting ready for the Consumer Duty?
What challenges to meeting its requirements have we found?
Do we anticipate any impacts on our external relationships with distributors and suppliers?
If you have any questions about how the new Consumer Duty requirements affect your firm, we suggest you:
- review the FCA website fca.org.uk/firms/consumer-duty
- contact your network or compliance provider.
If you have any questions about our response to the new Consumer Duty, please email us at: email@example.com.
We have developed a comprehensive and robust assessment process which evaluates several aspects of our business to determine the value of our mortgage product. This analysis is used to ascertain whether the Product delivers fair value for customers.
The outcomes of the assessment process are presented to Senior Managers, allowing for challenge and further investigation before we sign-off the outcomes and share the summary of our assessment with you.
The review has considered:
- The range of features that the Product provides, the quality of the Product, the level of customer service that is provided and any other features that the Product may offer.
- The interest rates, fees and charges customers pay for the Product, comparable market rates, advice fees paid to intermediaries and non-financial costs associated with operating the Product.
- The cost of funding the Product and any other reductions in costs to the customer made possible by economies of scale.
- Any limitations on the scope and service we provide or the features of the Product.