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Going overboard

Before to the launch of Safe Home Income Plans in 1991, the waters in the equity-release market had become decidedly choppy.

But this non-profit-making body for product providers, whose 18 members account for over 90 per cent of equity-release business, has played a vital role in restoring confidence in a product that had become synonymous with scandal during the 1980s.

Consumers who deal with a Ship member have a number of valuable safeguards, the most important being the right of tenure for life, the right to move home in future without penalty, a guarantee that they cannot incur negative equity and an insistence that they receive independent legal advice.

Although at the outset, the boundaries were a bit blurred between Ship and Hinton & Wild Home Plans , the specialist intermediary that administered it, this ceased to be a problem well before Key Retirement Solutions, another specialist intermediary, took over the administration in January 2002.

Key Retirement Solutions, which is itself a member of Ship, provides free labour but is reimbursed for printing and postage costs. Its admin agreement prohibits it from profiting directly from this role and its staff answer Ship calls from a different phone number and make it clear they are wearing a separate hat.

Nevertheless, despite all these impressive credentials, intermediaries should not necessarily avoid non-members such as Scottish Widows Bank and Newcastle Building Society.

Ray Boulger, technical manager at independent mortgage adviser Charcol, says: “If your objective is simply to get a lump sum from a lifetime mortgage, then Newcastle Building Society product has the cheapest rate on offer at 6.5 per cent and by calculating interest annually it typically creates a saving of around 0.2 per cent a year over lenders who calculate interest daily or monthly.

“We recommend it quite often for those who do not want other facilities such as the ability to draw down money on a monthly basis but it is not as flexible as products offered by the likes of Northern Rock and Legal & General.

“Although Scottish Widows Bank and Newcastle Building Society are the only non-members providing fixed-rate mortgages, there are other nonmembers offering variable rate equity release mortgages that could be useful in certain cases. Dealing only with Ship products as a starting point can therefore be a dangerous route to go down because you can be short-changing clients.”

Membership of Ship involves paying an initial £10,000 application fee and a further annual charge of £4,000 but neither Newcastle Building Society nor Scottish Widows Bank cite cost as a barrier to joining.

The former, whose product would meet Ship&#39s core membership criteria, only does business with a select number of intermediaries and these do not regard membership as a critical distribution issue. It also feels that Ship membership will become something of an irrelevance once equity-release lifetime mortgages become regulated by the FSA this October.

Scottish Widows Bank, on the other hand, would not be able to join unless it tweaked its product. It allows providers and clients to use solicitors from the same firm – an approach that can save around £250 – whereas Ship insists that solicitors from different firms are used.

Saga&#39s product, launched as a joint venture with Scottish Widows Bank in July 2003, would also fail to meet with Ship approval as it is sold on an execution-only basis.

But Scottish Widows Bank says imminent regulation would be a sound reason for not joining even if it was eligible. The FSA requirements, although not governing product standards, go well beyond those of Ship membership.

For this reason, Ship is destined to undergo a significant change in emphasis. Although it will remain a useful source of consumer information for lifetime mortgages, its primary significance is likely to be with regard to home-reversion schemes which, unlike lifetime mortgages, are not due to be regulated under the current proposals.

Unlike lifetime mortgages, which allow you to retain ownership of your home but to receive a cash sum or a monthly drawdown of your equity during the term of your plan, home-reversion schemes enable you to sell all or part of your home in return for either a cash sum or guaranteed income for life but to continue to live there as a tenant for life.

In 2003, Ship members lent only £129m for home-reversion schemes compared with £1.03bn for lifetime mortgages. This compares with respective lending for 2002 of £201m and £651m. Concerns over the fact that home-reversion schemes will not be regulated have undoubtedly contributed to this steep decline.

Ship chairman Jon King, says: “Ship and others have been lobbying very hard for regulation of reversion schemes and we are almost certain to be hearing from the Treasury before the summer in response to the results of its consultative paper on the subject. Everyone I know is pro-regulation but if the Government is going to change tack it will definitely = not be until after the next election and we are probably talking about two years.

“Until then, we see ourselves as being responsible for making sure that people remain confident in reversion business and intend to add various things to our code to give it teeth. One of the measures that we are considering is to have a compensation scheme in place for reversion business and we have been talking to the Council of Mortgage Lenders and the ABI to this effect.”

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