Home reversion plans have been seen as a contentious product area for a while now, with many intermediaries choosing to avoid them completely. This is in part due to the lack of regulation in the market. Indeed, they are seen by some as being too risky an area to include in advice propositions.
In the past, home reversion plans conjured up images of vulnerable old ladies, signing away their largest asset for small monthly sums that will equate to far less than the property value, leaving their nearest and dearest with nothing after they die.
However, in a society where many have failed to adequately plan for the funding of their retirement, maintaining a lifestyle with the equity of your home is an increasingly realistic and viable option, even if it does mean spending your children’s inheritance.
In light of this, the Financial Services Authority (FSA) has decided it is high time home reversion plans became regulated so anyone providing advice on these products is culpable should they fail to adhere to the FSA’s practice standards and requirements.
Removing the worry
As of 6 April 2007, the whole equity release market will come under The FSA’s regulatory control, which will hopefully mean brokers will no longer have to worry about the negative publicity of cases where un-authorised advisers have mis-sold these products.
Duncan Young, managing director, Retirement Plus, says: “Once home reversions are regulated, the whole market will be regulated making it much easier for brokers and customers. However, my only concern is how many brokers will do the exam to be qualified in time for regulation.”
Improving advice
According to Stuart Wilson, managing director of Equity Release Advisory Service, regulation will not necessarily equate to better, more qualified advice from those already FSA-regulated, although it will get rid of the many unregulated advisers that tend to be involved with the mis-selling of home reversions.
Wilson explains that despite it being necessary for all advisers selling home reversions to be regulated, the FSA will not require them to individually obtain the necessary qualifications for a further two years, and only then will the brokers currently advising clients through ‘grandfathering’ rights gained before the introduction of regulation, be forced out.
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Although Wilson welcomes statutory regulation and believes it will help accredit home reversion plans in the eyes of both the public and advisers themselves, he believes equity release advice will only improve significantly once Safe Home Income Plans (SHIP) implements its requirement for advisers to have passed one of the recognised equity release and home reversion examinations by August 2007.
Wilson explains: “Come August, SHIP members will only do business with qualified intermediaries, so hopefully unqualified advisers who do very little equity release business will begin to refer enquiries to suitably qualified specialist advisers.”
FSA loopholes
Unfortunately, there are several loopholes when it comes to the FSA’s regulation of home reversions, particularly with regards to the ‘Treating Customers Fairly’ (TCF) initiative.
Firstly, with home reversion plans only accounting for 4-5 per cent of equity release products sold, it is expected that many brokers and firms will decide not to advise on reversions anymore. This is despite warnings that this could breach MCOB, which states that when intermediaries are considering advice equity release, they must also consider a home reversion scheme.
Wilson comments: “With many brokers deciding it is not worth their while to be regulated on home reversions, many customers may miss out on having both these products explained to them. If a broker tells a customer about home reversion plans when they are only qualified to sell other equity release products, they are effectively kissing goodbye that business should the customer choose a home reversion plan is more suitable option for them.
Consequently many customers could potentially miss out on having all equity release options being explained to them.”
Duncan Young, managing director, Retirement Plus, also points out that home reversion plans where an assured tenancy is taken out, rather than a lifetime tenancy will remain unregulated.
The future
According to SHIP, 6,019 people have passed exams to advise on equity release since April 2005. However SHIP warns that more advisers need to gain qualifications in equity release, including home reversion plans, in order to meet demand for the products.
For those already qualified with CF7 qualifications or a Certificate in Lifetime Mortgages, top-up exams will be available in order to qualify advisers to sell reversion plans.
Young also hopes that once home reversion plans become regulated, more advisers will consider taking related qualifications, as more personal indemnity insurers will be more willing to include cover as part of their policies.
It is believed by intermediaries and politicians alike that equity release is growing market as more people rely on these products to maintain the lifestyle they have become accustomed to. Some have even argued equity release products cater for a social need.
Come April, a fundamental difference will occur and brokers will no longer have to explain that while the majority of lifetime mortgages are regulated, home reversion plans are not and customers are therefore unprotected. Regulation will put an end to these discrepancies and will hopefully allow consumers to make an informed choice on products. Regulation is good news for the consumer and intermediaries alike.
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