Home reversion plans will soon be policed by the Financial Services Authority but are unlikely to be included in the first wave of M-Day regulation, the Treasury has just announced.
A statement from Ruth Kelly MP this morning says the Treasury will now require the sale and design of all home reversion plans to be included under the new FSA regulated regime.
"Buying a home reversion policy is a huge financial decision involving the most important, and sometimes only significant, asset of elderly people," says Kelly.
"It can have significant implications for tax, benefits, inheritance and long-term financial planning. Regulation will help people to make informed choices, offer valuable consumer protection and ensure that there is a level playing field in the equity release market."
That said, products are unlikely to be regulated for at least another year – missing this year’s October 31st Mortgage Day implementation – as further consultation will be required by the FSA to define the scope of the regulation required along with parliamentary time to approve the details of additional legislation.
Former consultations conducted by the FSA had ruled out the inclusion of home reversion as part of the soon-to-be regulated mortgage market, as home reversion schemes technically involve the sale of a property – either in whole or in part - from an individual to a firm at the individual’s death, rather than the individual receiving a loan-based income and passing the bulk of property ownership to family, as equity release allows in the majority of cases.
Based on these property sales criteria, the FSA made clear during previous consultations it had no authority to regulate the sale of property, and could therefore not include home reversion under the regulated regime, even though the design is closely associated with equity release products.
However, there was widespread call – during discussions on plans for the regulated mortgage market – from the financial services industry to include home reversion plans under the new regime given their close proximity.
A public consultation was conducted by the Treasury last November entitled Regulating home reversion plans which eventually won majority backing by respondents.
The Council of Mortgage Lenders has already backed the plan to regulate home reversion schemes, as its officials believe leaving them out of the regime would have been to the serious detriment of consumers.
"The CML believes that if the Treasury had decided not to regulate home reversion schemes, there would have been a significant risk of consumer detriment," says a statement from the trade body.
"Consumers would have been confused by the apparent regulatory double standard, and there would be a risk of skewing the market simply because of the regulatory differences."IFAonline
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