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Archive for May, 2013

The FSA is now the Financial Conduct Authority (FCA)

Friday, May 31st, 2013

The financial market is one that typically needs strict oversight to help regulate the marketplace, making it a safe and comfortable place for consumers to invest and plan financially. Reassurance is key to a successful & thriving financial services industry.

 

Most consumers know the Financial Services Authority (FSA) to be the overall regulator of the financial industry. However, as of April 3, 2013, the regulator known as the Financial Services Authority (FSA) has undergone changes and has been renamed the Financial Conduct Authority (FCA).

 

There are several reasons for the change and there are also some impacts that may be felt by consumers, smaller firms, and accountants. For all intents and purposes, the FCA will be a more intense champion for the consumer than the FSA. The Financial Conduct Authority will better aid the average consumer and investor in finding the right products and investment strategies.

 

Despite the recent change, there are still several aspects of the regulator that have remained constant. For one, the Financial Conduct Authority will be largely staffed by the same people that staffed the FSA. They will be working out of the same location and will be regulating the same financial services and firms that were regulated under the FSA.

 

However, there are some differences between the FSA and the Financial Conduct Authority. The biggest of these changes is the idea that the business of regulating the capital adequacy of the largest financial firms, approximately 1,700, is now outsourced to the Prudential Regulation Authority (PRA), which a sister regulator of the FCA. Under the PRA, the Financial Policy Committee (FPC) will be overseeing the “macro” issues relevant to the industry. Both the FPC and the PRA are essentially a part of the Bank of England.

 

The Financial Conduct Authority has also gained some authority and power that was lacking in the FSA. For one, the FCA can intervene in the promotion of market-wide products. This means that the FCA has the power to ban the sale of fraudulent products.  This means that the FCA may have a stronger presence when it comes to advocating for the consumer’s best interest. This can only be good for the consumer and genuine financial advisory services companies.

 

For consumers, the change from the FSA to the FCA may not be felt very strongly. However, the FCA is an advocate for the consumer. The regulator allows the consumer to have a market place that promotes reliable products to the consumer. Without the FCA, consumers would have a much more difficult time planning for their financial futures.

 

All promotional materials showing the FSA are to be phased out by April next year, however many firms have already taken the initiative, embraced the changes and adopted the new Financial Conduct Authority as the necessary changes to keep on improving the industry.

 

Equity Release Supermarket are directly authorised by the FCA with permissions under their FCA no 584063. For assurance purposes all financial services firms can be checked on the FCA register to ensure they are fully authorised, or even what permissions and authorisations they have. To check any companies details click this FCA register link.

 

In addition for equity release purposes, we only recommend lifetime mortgage & home reversion schemes from companies that are members of the Equity Release Council. Both authorities combined, provide the assurance to our customers that Equity Release Supermarket provide the exact standards required to offer our customers peace of mind & the security that regulation can offer.

 

If you have any questions about the impact of the FSA/FSA changes or further details on the Equity Release Council contact Mark Gregory on 01925 830816 or email mark@equityreleasesupermarket.co.uk.

 

How the FCA Interest Only Mortgage Review May Impact Sales of Interest Only Lifetime Mortgages

Sunday, May 5th, 2013

May 2013 will be remembered as the wake-up call for customers with interest only mortgages. After all the talk about time bombs ticking down to zero, the FCA (Financial Conduct Authority) has now issued a regulatory warning, advising that action should be taken, and also how.

 

The interest only mortgage has been sold in bucket-loads for reasons a plenty. Ideally, an interest only mortgage should always have some form of repayment vehicle which is confirmed to the mortgage lender at inception.  This could be in the form of a low cost endowment, personal pension plan, regular savings ISA, stock and shares, investment bonds or even sale of 2nd home such as buy-to-let or holiday home. The only way of guaranteeing repayment of a mortgage is by choosing the capital & interest repayment mortgage route.

 

However, the relaxation of lending rules during the pre-credit crunch era meant that these mortgages where only interest is repaid were all too often taken due to being the cheaper option. It soon became apparent that these mortgages were not necessarily taken for the right reasons.  Not only that, where repayment vehicles were set up using pre-determined growth rates, these have fallen way short of their target growth rate.

 

These statistics have been confirmed by the FCA, who stated that almost half of the 2.6 million customers with a UK interest only mortgage won’t be able to clear their mortgage by the end of its term. In fact the average only interest mortgage balance will be approximately £72,000 by its eventual settlement date. These interest only mortgagors will somehow need to find this repayment amount, or end up having to sell their home and downsizing.

 

How Can Interest Only Lifetime Mortgages help?

This will depend upon at what stage of the mortgage term any retrospective action is to be taken. The best situation would be if remedial action could be effected during the interest only mortgage term itself. This would mean assessing the amount to be repaid & the time remaining for repayment of the original capital amount. Using a suitable interest only mortgage calculator, you can check to see how much you should be repaying in order to meet the mortgage outstanding. This will illustrate the size of the problem and what strategy is vital moving forward.

 

However, this is all & well if the situation can be nipped in the bud with many years remaining. Unfortunately, there are many mortgagors where the FCA interest only mortgage review has come too late. These are the people who have now reached retirement and realisation has sunk in that they still have no means to repay their mortgage. Mortgage lenders are reigning in these mortgages, many with no remorse.

 

Nevertheless, there is a small crumb of comfort for some as the FCA statistics do show that 85% of interest only mortgage cases maturing up to 2016 will have a 39% loan-to-value, or less. We also know from their data that over 48% people are over age 55 at this point. Fortunately for them there is a mortgage solution in the form of another type of interest only mortgage. Here is where the equity release industry can come to their aid.

 

Interest Only Solutions

An interest only lifetime mortgage works on the same principle as the interest only mortgage. The difference comes in the term, as the interest only lifetime mortgage will never need repaying until the last person has died or moved into long term care. Therefore, if affordability into retirement is not an issue, then committing to a life of interest only payments could prove a solution. Given the size of the interest only epidemic due to inflict itself upon the UK mortgage population this form of lifetime interest only mortgage could prove salvation for many who wish to keep their home.

 

The enormity of the situation could therefore be of benefit to the interest only lifetime mortgage providers such as Stonehaven, more2life and Hodge Lifetime. Where the applicants are aged over 55 and the loan-to-value criteria fits, then one of these equity release providers may be able to assist. With interest rates now closer to conventional mortgage rates than ever before, the differential in pricing is not that far apart.

 

In particular, where the discipline of monthly repayments are required, then the Stonehaven Interest Select Lite provides a solution whose interest rate begins at 5.99% (6.40% APR). The Stonehaven range of plans eventually rise upto 6.81% (7.3% APR) with the Interest Select Max, but offer a higher maximum lump sum.

 

As an alternative, if a more flexible repayment approach is preferred and the youngest applicant is 60 or over, then the Hodge Lifetime Plans may suit. The Hodge Lifetime flexible repayment option allows upto 10% of the original capital borrowed. Repayments can only start after 12 months have elapsed and a maximum of two payments are allowed each year thereafter. This effectively could provide an even better solution to interest only short fallers, as should the full 10%pa be repaid off the mortgage balance, then this would prove to be a new type of equity release scheme – a capital & repayment lifetime mortgage!

 

If you are one of the thousands of interest only mortgage customers with your mortgage company demanding repayment, then contact the Equity Release Supermarket team on 0800 678 5159 today or complete our contact request form.

 
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