Roll of houses

Product governance

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.

Our response to the FCA’s new Consumer Duty

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 Interest Roll Up Lifetime Mortgage (IRLM), 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.

What's changed?

  • We’ve split our core target market definitions into three sections:
    • Section one: Core qualifying criteria
    • Section two: Key points customers must understand about the product
    • Section three: Which customers might fall into the target market, now including who the product is suitable for, more detail about tax and health status, etc.
  • 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 three products, setting out that:
    • IRLM 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 a sustainable income to pass our affordability assessment to make contractual monthly interest only payments for an agreed specified term, 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.

FAQs

The Consumer Duty is a very significant piece of regulation that sets higher expectations for the standard of care firms across the financial services industry give to consumers.

It has been described by the FCA as a “paradigm shift” in its expectations of firms in retail markets. Its purpose is to drive cultural change and instil consumer trust and confidence. It introduces a new Principle that “A firm must act to deliver good outcomes for retail customers”.

Consumer Duty is an essential change in UK regulation as it is part of the FCA's three-year strategy to deliver better customer outcomes. It will become crucial to its supervision, enforcement, and authorisation approach. This also emphasises that the FCA now wants an increased focus on outcomes for customers rather than a narrow focus on principles and rules.

This means that the FCA now expects a higher standard of care, based on the concept of reasonableness to deliver good outcomes, avoid causing foreseeable harm and remedying harm to customers where this occurs.

This new duty will be relevant for all firms who are authorised under the Payment Services Regulations 2017 (PSRs), Financial Services and Markets Act 2000 (FSMA), and the E-Money Regulations 2011 (EMRs).

It applies to “retail market business” carried on with “retail” customers. It applies to existing products or services which are still being sold to customers or renewed, and also to closed products or services. It also applies to prospective customers and customers with whom a firm does not have a direct client relationship.

  • A new Principle that ““A firm must act to deliver good outcomes for retail customers”.
  • Three new cross cutting rules; Act in good faith towards customers, avoid foreseeable harm and Enable and support customers to go after their financial objectives. These Cross-cutting rules have been created by the FCA to ensure greater clarity on their expectations under the duty.
  • Four Outcomes areas that represent key elements of the firm-consumer relationship which are instrumental in helping to drive good outcomes for customers; Products and services, Price and value, Consumer understanding and Consumer support.

We responded to the FCA discussion paper and consultation back in February 2022. Then we completed a gap analysis that helped us understand their impact on our business. That fed directly into our current Consumer Duty implementation programme. We’ve reported our implementation plans to the relevant Boards and appointed a Non-Executive Director Consumer Duty Champion.

We have identified and begun addressing several challenges ahead of the April and July 2023 deadlines. These include:

  • Our Product Lifecycle Management (PLM) process: This process governs how we design, develop and manage our products. We’ve already updated it to reflect the enhanced requirements of the Consumer Duty. We regularly review our products and services to make sure they’re competitive, effective, and fit for purpose.
  • Monitoring price and value: We have robust measures in place that govern how we manage and monitor the price and value of our products. We have reviewed and updated our value for money framework and are currently completing our fair value assessments so we can supply the information that distributors will need from us by the end of April.
  • Boosting customer understanding and support: We have reviewed customer touchpoints across our new business and post-sale journeys to understand customer outcomes and improve how we communicate with and support our customers. So, we’re reviewing the content of our communications and what we send at different points in the customer journey. We are currently testing our communications where appropriate.
  • Improving customer outcomes: We’re looking at customer outcomes across our end-to-end journeys and defining what sort of evidence we’ll need to monitor and report on them. We’ll also need to be able to request that kind of information from distributors and share it with third parties.

The breadth and scope of the new requirements mean that we’ll need to:

  • work closely with our distributors and suppliers to collectively deliver good customer outcomes
  • carefully consider the data and management information we receive and share across our customer journeys, ensuring greater transparency and the right levels of oversight across all parts of the distribution chain
  • continue to engage with the regulator and other stakeholders during the iterative implementation period, supporting industry-wide best practice.

Further information

If you have any questions about how the new Consumer Duty requirements affect your firm, we suggest you:

If you have any questions about our response to the new Consumer Duty, please email us at: consumerduty@landghomefinance.com.

Target market

Regulatory updates

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.

Product Governance, Fair Value and Consumer Duty Lifetime Mortgages

Product Governance, Fair Value and Consumer Duty Retirement Interest Only Mortgages

Product information

Whilst we are in the process of undertaking the above work, we acknowledge that you will require some information about the features and benefits of our existing range of products and services.

Our product summaries set out this information and these can be found on below.

 

For an overview of our Lifetime Mortgage products

For an overview of our Retirement Interest Only Mortgage