Equity release soars
VULNERABLE elderly people could increasingly be the target of unscrupulous salesmen pushing unsuitable equity release plans, according to figures out this week.
Sales of home reversion plans have shot up by 80 pc since the mortgage market became regulated by the Financial Services Authority (FSA) last year.
However, these regulations do not cover home reversion schemes, only the less risky type of equity release scheme, the lifetime mortgage.
Reversion schemes are not yet regulated — and this is probably one of the reasons why sales of reversions have leapt, as anyone can sell them.
Figures from industry body Safe Home Income Plans (Ship) show that when the regulations came into play last October, sales of home reversions had amounted to only £ 9.6 million in the three months to September, compared with £ 17.3 million in the third quarter of this year. Home reversion schemes involve elderly homeowners selling part or all of their home at a substantial discount to a reversion company.
Money Mail first warned that reversion plans could be mis-sold as early as 2002 when plans to regulate the mortgage market were unveiled.
There are fears that the elderly could be sold home reversions by unscrupulous salesmen, taking advantage of the gap in regulation, without realising they are signing away their home.
Regulation is essential with equity release schemes because these are, by nature, complicated products and there are worries that unless a salesman has to go through all the hoops required for a regulated sale, the elderly homeowner may not fully understand what they are signing up for.
In addition, if something went wrong with a regulated sale of a lifetime mortgage, the elderly homeowner would have recourse to the Financial Ombudsman Service: this wouldn’t happen with an unregulated reversion sale. A spokesman for Age Concern says: ‘ We would like to see the market fully regulated so that older people are protected no matter what product they are buying.’
Ironically, one of the reasons home reversions are on the increase is that under FSA rules, advisers offering lifetime mortgages are required to point out all the options available — including reversions — before making a sale.
With lifetime mortgages you borrow a lump sum, or draw out regular amounts, against the value of your home. The interest is rolled up and added to the loan, which is repaid only when you die or go in to long-term care. Ship members have been urging the Government to bring in regulation of reversions for years. New laws are expected to come out late next year at the earliest to bring sales of these plans into line with lifetime mortgages.
Jon King, chairman of Ship, says: ‘We think there should be a level playing field. The most important thing is the right to make a complaint and to have access to the Financial Ombudsman in the case of mis- selling.
‘ That’s why we have a complaints board at Ship that our 19 members have to comply with. Our members represent 90pc of the equity release market.’
Low pension payouts
and rising house prices
have made equity release
schemes more popular in
recent years.
There are fair equity
release schemes, including home reversion
plans. The amount you
get depends on your age.
For example, a couple in
their mid- 70s with a
£100,000 property would
only receive £ 22,360 if
they sold half of it.
The main risk is that
you will die or have to go
into long- term care
shortly after taking one
out. Once this happens,
your home is sold by the
reversion company who
bought their share
cheaply, assuming you
had years left to live in it.
Norwich Union, which
boosted the reversion
market by introducing a
product earlier this year,
has brought in a safeguard to reduce this risk.
If you die or go into longterm care within five
years of taking out their
reversion, your payment
will be increased to bring
it closer to its true value.
HAROLD and
Elizabeth Stephens (pictured left with Ally the cat) took out a lifetime mortgage in April on their £160,000 two-bedroom house in Ivybridge, Devon, through Key Retirement Solutions. Because they took out a lifetime mortgage after October last year, the advice and loan they received was regulated, which gave them the top level of protection. They spent some of the money on home improvements and invested the rest to boost their pensions. Mr Stephens, 77, says:‘We have no children to leave it to so we might as well make use of the money tied up in our house. We should earn about £6,500 on the lump sum we’ve invested, which will help as my pension is very small. ‘It’s good to know we’ve got the money behind us. If I want to change the car now, I know I can do it.’