Stakeholder position: Which?

 

 

Which? welcomes the bill which will close the loophole which exempts some equity release schemes from regulation. It will also bring all Sharia compliant equivalents products (Ijara) under Financial Services Authority (FSA) regulation.

 

What is a home reversion scheme?:

 

Home reversion is a form of equity release, a way of releasing cash from the value of your home.

 

Why is this bill needed?:

 

Until now, a regulatory loophole meant that people buying home reversion schemes haven’t had the same protection as those buying the other main type of equity release, known as Lifetime mortgages.

 

Which? has campaigned since 2003 for the loophole to be closed. We’ve always argued that it makes no sense for just one type of scheme to be regulated: both are equally risky and should be treated with caution.

 

What will this new legislation mean to consumers?:

 

When the legislation becomes law, consumers buying all equity release products will have access to the Financial Ombudsman Scheme (FOS) in case of complaints. The Financial Services Authority (FSA) will also be regulating and monitoring the products and how they are sold.

 

Definition of equity release products

 

Home reversions Schemes:

A homeowner sells part, or even all, of their home in return for a lump sum.

(Currently neither products nor advice are covered by FSA regulation.)

 

Lifetime mortgages:

A homeowner borrows money against the value of their home, Lifetime mortgage products and advice surrounding the sale of a lifetime mortgage were regulated in October 2004.

 

Important points about equity release

 

Using an equity release scheme is not always the most appropriate option for people. Which? recommends that everyone considering this option seeks authorised, independent financial advice.

 

What about people who won’t be covered?

 

Back in 2002, Which? highlighted the cases of people who were mis-sold home income plans (HIPs) a type of equity release scheme sold widely in the 1980s. These HIPs involved taking out a mortgage on your home and investing the proceeds in a high-risk investment – HIPs were banned in 1991.

 

However, many thousands of the elderly people who bought HIPS are living out their retirement with mounting debt they cannot hope to repay as they were mis-sold the product. With no further access to the redress system, their only hope is for the lenders who mis-sold them the HIPS to freeze the loan interest. However lenders are refusing to do this and the debts continue to spiral.

 

Which? is calling on Parliamentarians to put pressure on these companies to freeze the interest, and to help these vulnerable consumers.

 

For more information, contact Emma Bandey, Senior Public Affairs Officer Tel: 020 7770 7821 or emma.bandey@which.co.uk.