Mortgage pressures are increasingly becoming a pensions issue, Financial Conduct Authority (FCA) chief executive Nikhil Rathi, has said, arguing that “bold shifts” are needed to address structural challenges and help retirees draw on their housing wealth more effectively.

Speaking at the Legal & General Mortgage Club conference, Rahi noted that several structural challenges remain in the mortgage market, with feedback to the FCA's recent discussion paper revealing that the groups likely to find it more difficult or expensive to get a mortgage are growing. 

This has major implications for retirement outcomes, as Rathi cautioned that, without meaningful change, more people will rent for longer, with the proportion of retirees in rented accommodation potentially more than doubling by 2041, requiring almost £400,000 more in savings than those who own their home.

“The market and regulation need to serve them better,” he said, stressing that while the FCA does not claim to have all the answers, it is looking to give firms greater flexibility to provide more options.

Among the options Rathi suggested could merit debate is whether some individuals should be able to use pension savings to support homeownership, or whether the UK should consider a ‘Citizen’s Advance’ on the state pension.

“While each would introduce new risks – we need to debate some bold shifts to meet the challenges we face,” he said, adding that the FCA’s response to the discussion paper must be “focused on outcomes, not orthodoxy”.

He also suggested that it may be time to reevaluate the trade-offs of, at least partial homeownership, against the alternative of renting into retirement, and the additional pension saving it requires.

“What can we learn from others around the world who have tried new ideas,” he said. “We need to begin answering those questions today – to deliver the market of tomorrow.”

In addition to using pension wealth to unlock housing opportunities, Rathi suggested that some of the nation’s £9trn of housing wealth could be unlocked more effectively and put to more productive use, particularly to sustain living standards in later life.  

“The mortgage market should be on hand to unlock wealth at the right time – when it’s needed, offering fair value, as part of a wider financial plan. Not as a last resort,” he said.

Although he acknowledged that legacy issues from the 1990s may still shape perceptions of equity release, he stressed that lifetime products are continuing to evolve.

“More flexible retirement and lifetime mortgages are already supporting some consumers. More could benefit,” he said. “Advice and support will be vital to help consumers navigate options."

However, Rathi stressed that all of these ideas will require a more holistic approach, warning that "across pensions, investments, and mortgages, advice is often siloed".

"Even mortgage advice is split between mainstream and equity release specialists," he continued.

“This can leave consumers – who typically have just a few interactions with any one of these sectors in their lifetime – to make critical, one-off decisions, unaware of all their options.

However, he said that feedback to the FCA's discussion paper revealed "clear motivation to take a more effective, streamlined approach", suggesting, for instance, that housing wealth options could be reflected in Pension Wise, or mortgage advisers could be able to advise on lifetime products.

Rathi also pointed to the FCA’s recent targeted support work as evidence that the regulator “can think radically”.

“Could we be similarly creative about how we help homeowners begin to consider how they might draw on their housing wealth more easily later in life?” he asked.

“Further thought and engagement is needed, but the aim is clear: an industry supporting consumers to fully understand their options for funding later life, receiving timely and appropriate support and advice, with products that deliver positive outcomes, offering fair value."

However, Rathi argued that "true reform must be systemwide", stressing the need for all of those involved - consumers, industry, regulators and government – to think differently.

Rathi concluded: "We have been grappling with these issues – affordability, an ageing society, and the future of the market – for the better part of a decade. So, shaping a new mortgage market for the future will be no small feat.

"Ensuring we have a market that provides consumers fair value, high-quality advice and support is crucial.

"But true reform must be systemwide. We’ve shown we’re up for it...It’s time for others to join us. "

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