While the FCA’s changes are designed to make reducing mortgage terms easier, Advisers must not lose sight of the need to balance affordability with suitability. A shorter term will almost always reduce the overall cost of borrowing, but the associated increase in monthly repayments may not be sustainable for all customers.
Advisers should take time to explore the customer’s wider financial circumstances, including existing commitments, lifestyle expenditure, and future plans. This will help ensure the customer can realistically meet the higher repayments over the lifetime of the term, not just in the short term. In particular, Advisers should assess whether income or expenditure changes, such as starting a family, changes in employment, or approaching retirement, could impact affordability.
Explaining both the benefits and potential risks of a term reduction is essential. While the long-term savings can be significant, Advisers should ensure customers understand the commitment they are making and the importance of maintaining affordability. This discussion should be recorded clearly on the file, with evidence that the customer has been supported to make a properly informed decision.
By combining a suitability assessment with clear explanations, Advisers can help customers take advantage of the FCA’s flexibility while avoiding the risk of financial strain or foreseeable harm.
