TREASURY TO CONSULT ON REGULATION OF HOME REVERSION SCHEMES

5 Jun 2003 05:15 PM

A consultation paper examining the options for regulating the sale of home reversion schemes will be published this Autumn.

Announcing the decision Paul Boateng, Chief Secretary to the Treasury, said:

"The home reversion market is estimated to currently be worth over £250 million a year and is growing rapidly. The target market tends to be elderly, and sometimes vulnerable, people who have paid off their mortgage. Informal discussions with stakeholders have provided no evidence of consumer detriment at present. However given the rapid expansion of the market and concerns over the potential for consumer detriment there will be an open consultation examining the cost and benefits of regulation.

"The key considerations of the consultation will be consumer protection and market efficiency. If it is decided that regulation is appropriate the FSA will be given powers to regulate."

Notes To Editors

1. Under home reversion equity release plans, a homeowner agrees to sell all or part of their home in return for a lump sum payment and the right to remain in the house rent free until they die or move home. At such a time the home reversion provider is free to sell the property. Under mortgage backed equity release plans, a homeowner takes out a loan secured against a property. The loan is used to provide a regular income or provide a lump sum payment. Ownership remains with the homeowner. The loan is repaid when the property is sold either upon death of the owner or if the borrower moves house.

2. Mortgage backed equity release schemes will fall within the scope of FSA regulation when the FSA takes on responsibility for regulating mortgages in October 2004. However under current legislation, home reversion plans cannot be brought into FSA regulation as these are sale and purchase arrangements rather than financial services products.

3. The green paper, Simplicity, Security and Choice: Working and Saving for Retirement, published 17th December 2002 stated that HM Treasury would be 'looking at options to create a level playing field for the regulation of equity release and home reversion plans to protect consumers and make the market work better.' Copies of the green paper are on-line at www.dwp.gov.uk.

4. The trade body Safe Home Income Plans (SHIP) estimates that the combined market for equity release and home reversion products in 2002 was £852 million. Home reversion schemes are estimated to account for roughly one third of this.