What you need to know about the Consumer Duty Target Market for equity release
Consumer Duty sets higher expectations for the standard of care that firms across our industry give to consumers in retail finance markets. It aims to ensure that existing best practices on good customer outcomes are applied consistently. Under the rules, we review a product’s suitability for its potential market by identifying relevant risks and ensuring that the intended distribution strategy is appropriate for the identified ‘Target Market’.
All these and other Consumer Duty regulations are essential to consider for equity release products. Likewise, it’s also crucial that you make sure that your clients are fully informed about how we apply the rules in relation to the money your clients plan to borrow.
How do I manage this on the online application?
You’ll see a dropdown list of reasons for the equity release loan, in line with the Consumer Duty regulations Target Market statement, which you can read here
Here’s some examples:
|Car purchase||Home improvements|
|Gifting money to family (including intergenerational lending)||Repaying secured and unsecured debt (where other more suitable debt management/consolidation can't be arranged)|
|Holiday||Second home for applicant’s personal use|
Are these reasons for borrowing suitable in all situations?
As ever, each case is unique. Although these reasons for borrowing are suitable, they could pose a higher risk of a poor customer outcome if the loan amount required is higher than the trigger. So, in certain situations, your recommendation may require an amount higher than the trigger, falling outside of our Target Market. In that case, you can still submit the business but you’ll need to complete an attestation,which we cover below.
What are the trigger amounts and situations?
Here’s what you should watch out for:
Lifestyle / income
Care in the home
Inheritance Tax Planning
What happens when borrowing falls outside the Target Market?
We can still accept the business, but you’ll be asked to complete an attestation to confirm that:
- the amount requested meets your customer’s needs;
- your customer understands the impact of interest roll up on money taken upfront; and
- setting up a cash reserve facility has been considered.
In addition, although there is no monetary trigger if the reason for borrowing is for the purposes of Inheritance Tax Planning, an attestation is required to confirm the customer has received advice from a qualified wealth adviser.
How do I record this online?
You’ll see it when you submit an initial borrowing application. Here’s where you’ll find the attestation on our online application journey. If you agree to the attestation you need to answer ‘yes’.
If you cannot agree to the attestation you should consider whether the loan amount selected is suitable. You can revisit your advice and amend the application before submitting, if necessary.
Why is this necessary?
As a responsible lender, we need to understand:
- what every pound released will be used for; and
- ensure that the reasons you provide are both reasonable and acceptable
In certain situations - depending on the reason for loan - we may need to complete some additional due diligence checks. These won’t hold up the application, which will still continue to the valuation stage. We’ll contact you at the underwriting valuation stage if we need extra information.
Can you give me some examples about when this might happen?
Here are some examples of reasons for loan in the dropdown list in the online application when we might contact you at underwriting valuation stage:
Gift (inside UK)
Home improvements (non-structural)
Gifting money to family/friends (outside UK)
Under construction purchase of main residence
Gift (outside UK)
|Purchase 2nd home/holiday home (outside UK)* |
*in this case, the application will pause once you have submitted the application until we have completed some additional due diligence checks. If all checks are satisfactory the application will continue to valuation. Again, we’ll be in touch if we need more details.
What types of borrowing are unsuitable and fall outside the Target Market?
Below is a list of unsuitable reasons, several of which are self-evident. Applications will be declined for any of these reasons.
Money to be held in deposit with no foreseeable or planned immediate need
Investments (except for Inheritance Tax Planning). Examples include:
o Business investment/business venture where the applicant holds an interest in the business (direct or otherwise)
o Investment to generate wealth or income
Investment Properties including Buy to Let Properties and Property Investment Club (PIC)
Timeshare property purchases
Illegal, speculative, or gambling purposes
Providing a 'repayable' loan to an unrelated third party
Where the use of the money will result in the property not meeting our property lending criteria , such as spray foam insulation
Customer(s) student loans
The loan is expected to be repaid early and will incur an Early Repayment Charge