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Reversion regulation could be on fast track

The Queen’s Speech last week confirmed that home-reversion schemes will be covered by the same proportionate regulation as lifetime mortgages. Legislation is set to be enacted within 18 months although it could take some time for regulation to be fully implemented by the FSA.

GE Life senior product manager Simon Little says: “We are really encouraged by the announcement. We have heard it may not take as long as 18 months for the legislation to be ready, it may even be ready in as quickly as 12 months.”

There is general confidence within the industry that practitioners will be asked to be involved in the regulatory process. One of the criticisms of mortgage regulation last year was there was not enough input from those who have to carry out the regulated processes.

Little says: “Members of Safe Home Income Plans are certainly keen to be involved in this. From the conversations we have been having, there are good omens that we will be able to participate.”

When the Treasury and the FSA were considering initial mortgage regulation, they had difficulty in establishing what home reversion has in common with the traditional definition of a commercial mortgage and whether it could sit alongside mortgage regulation.

Little says: “The definition of home reversion is an interesting question. It all depends on the nature of the product. Is it a lump sum or is it an income? These are two different things. I believe there are going to be many discussions on this.”

Key Retirement Solutions business development director Dean Mirfin says: “In the Treasury’s consultation paper last December, there is a very lengthy explanation of what a home-reversion product is. It is quite hard to say in a few words what exactly it is.

“Home-reversion products currently account for only 5 per cent of the total value of equity-release plans sold, according to Ship’s figures for the first quarter of 2005, but with the widening perception that the housing market is slowing, their relative attraction is likely to increase.

“With this potential growth and in order to build consumer confidence in the industry, we urge the Government to implement these changes quickly in order to bring the entire equity-release industry under one regulatory regime.”

Norwich Union director of personal finance Mark Kelly says regulation will bring consistency in sales practices across the industry, clearer information and access to compensation if customers have to complain.

Currently, Ship offers a system where its chairman will investigate complaints and work with the parties to achieve a satisfactory outcome. It this proves impossible, the complaint is referred to the independent rev- ersion complaints board.

With the added security of regulation, are many more providers likely to take the plunge into creating home-reversion products?

Norwich Union surprised many by entering the market this year. It says once the home-reversion market looks to be reignited, more interest may be evident.

The Grainger Trust expects the home-reversion market to increase to between 10 and 20 per cent of the whole equity-release market by the end of 2006.

Last year, the Council of Mortgage Lenders warned that failing to include home reversion within mortgage regulation would create an unlevel playing field between lifetime mortgages and reversions.

It said reversions might be offered at more favourable rates if companies did not have to include the costs of regulation, distorting the market and encouraging firms to develop products that fall outside the FSA regulations.

The industry will have to hope it does not have a few tricky months ahead and potentially a flood of complaints before home reversion is finally brought within regulation.


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