I have a lot of sympathy for Nationwide's stance on the equity-release market. It is clearly both nonsense that two alternative and equally valid solutions to the burgeoning requirement for the elderly to augment their income by using the equity in their home fall either side of the regulatory divide. They are also correct in their implied assertion that this sector has the potential to be one of the next missell-ing scandals.
I know of at least one other major lender, normally known for its innovative approach to the market, which will not enter this market purely because of its potential for adverse PR.
However, from a commercial and market aspect I think Nationwide is wrong in its decision not to lend in the sector. Obviously, it is missing out on a significant growth sector of the market, which will itself attract more attractive margins. There are echoes here of its decision a couple of years ago to stop providing attractive new business products and concentrate on value for its existing book.
I expect a similar U-turn this time when commercial reality bites. The real tragedy for the equity-release customer is that Nationwide is one of the few lenders which could really add something to the market. It has a substantial residential investment portfolio and has years of experience in the social housing sector. These two skill sets would allow it to enter the reversionary interest market as well as providing mortgage-backed equity-release schemes, providing genuine choice from one provider. Couple this with its brand values and consumers would find strong appeal in this sector. It could control all misselling risk by restricting distribution to its own branch network whilst the regulatory debacle works its way through.
The FSA's problem is more difficult to solve. Parallels exist with the buy-to-let market, in that home-reversion schemes are a property and not a financial services transaction.
The FSA is not currently equipped to cover advice on property transactions nor probably mandated to do so. Indeed, this lies at the heart of many of the curious decisions on what falls under the scope of regulation.
Clearly, the Government's stance has failed to keep pace with an increasingly sophisticated market where different marketplaces are offering parallel solutions to the same problem.
Buy to let as an alternative to pension provision and equity release versus home reversion are just two examples of this conundrum.
What on earth will they do when institutions start offering to buy property futures contracts as another solution to the problem?
We are assured that Callum McCarthy will relish the intellectual challenge of his new role as FSA chairman. Perhaps he should start by addressing the whole question of the FSA providing regulation of financial advice, whatever asset class it covers. It is advice on solving the problem rather than the solution itself that requires attention.
Without some immediate attention, we are heading for another opportunity for the consumer to be ripped off by a few unscrupulous brokers working outside the scope of regulation.
The ensuing bad PR will fall on to the regulated but innocent heads.
Home-reversion schemes, as a property transaction, generally attract higher commission than mortgage-based solutions.
Can you really believe that there are not players on the outer edge of the unregulated sub-prime sector which can already see the parallel opportunity? Buying lists of retirees, power-dialling them and fixing appointments for their advisers to call. All in an unregulated environment and highly profitable.
Many have accused the FSA of historically failing to spot problems such as Equitable Life and split-capital trusts early enough.
McCarthy's reputation at Ofgem suggests that he may want to prevent a recurrence and this would be one place to start.
Given that the Government has created the underlying problem by its persistent stealth taxation of the pension sector, it might encourage him to provide a safe environment for the sale of these much-needed products.
Mark Chilton is an independent adviser to the mortgage industry