FCA provides guidance for Lifetime Mortgage Providers

The FCA has set out its key concerns and priorities for lifetime mortgage providers ("LMPs") in a Dear CEO letter. The concerns and priorities of the FCA highlighted in the letter will be of interest to those in the LMP market and their FI insurers.

Referring to recent years of economic instability, the FCA's letter notes that in a period where the cost of living has gone up, consumers are looking to credit options including in the lifetime mortgage market and this may lead some consumers to purchase unsuitable later life products.  The letter also notes the challenging market conditions for LMPs impacting sales volumes and restricting the availability of some higher LTV products.

Priorities for the FCA

During 2025 the FCA will engage with LMPs on their culture and controls (looking at non-financial misconduct) and also focusing on the following priority areas:

• Consumer Duty – LMPs should embed the Consumer Duty.  The letter notes that priorities for LMPs include monitoring the firm's products and services to ensure they are appropriately designed for target markets and evidencing that a firm's products/services offer fair value.  

The letter also highlights responsible lending and closed products and services.  On responsible lending, the letter notes that firms should conduct accurate and appropriate affordability assessments where applicable.  It also notes the importance of not only ensuring that consumers understand a product at the outset and that the product meets their needs, but also that LMPs monitor changes in circumstances such as financial stress appropriately. 

On closed products and services, where the Consumer Duty has applied since 31 July 2024, the letter notes the importance of filling in out of date and incomplete client records including characteristics and needs, sales records or historic performance of a product and when this is not possible to take additional steps to mitigate the risk of harm. 

• Financial resilience (for non-dual regulated firms) – LMPs should ensure adequate financial resources are in place to ensure the financial safety of the firm. 

• Operational resilience – LMPs should have adequate systems in place to mitigate operational risks including incorrect notifications or demands for payments being issued to customers. The letter highlights that LMPs should have clear policies in relation to due diligence carried out at the outset of a relationship with an intermediary and that this due diligence should be reviewed on an ongoing basis.

• Financial crime and fraud – LMPs should remain aware of criminal misuse and although the risk is less than that for retail banks, LMPs should stay abreast of the tactics of bad actors.

• Sustainable finance – LMPs should ensure sustainability related claims are accurate and non-misleading.

Next steps

Going forward the letter emphasises the FCA's focus on the Consumer Duty and the FCA's intention to engage with LMPs to embed the duty with a focus on data and MI, culture and controls and understanding and treatment of the needs of customers in vulnerable circumstances (notably using the phrase "customers in vulnerable circumstances" rather than "vulnerable customers").  Further, the FCA "… will continue to actively monitor the market to identify poor consumer outcomes for borrowers in closed books and will act where necessary…".

Looking forward to 2025, lifetime mortgages are one of the significant areas of concern for the FCA, forming one of many portfolios subject to recent supervisory correspondence by the regulator. The letter further highlights the regulatory challenges faced by firms in 2025, balancing a need for tailored consumer-focused products and services whilst also ensuring adherence to evolving guidelines including the Consumer Duty and its application to closed products and services.