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Ship to sure

With the FSA regulating lifetime mortgages, brokers might wonder where that leaves Ship, which has acted as a self-regulating body since formation in 1991.

Ship has a major role to play in the promotion of minimum product standards.

The concept of equity release has been around since the 1960s when we launched the first reversion-type plan. Back then, people needed a monthly income to meet basic living costs. By the 1980s, a number of flawed schemes had been developed which encouraged people to borrow at varying interest rates and invest in the stockmarket.

These schemes were outlawed and the resulting bad press led to the formation of Ship which started out with just four founder members. It now has 19 member firms and has gone from strength to strength. Members display the Ship logo in their brochures and other printed material as a guarantee to their customers.

These days, the decline in value of state pensions, underperformance of pension schemes, falling stockmarkets and lower annuity rates are all combining to make earning a decent income in retirement difficult so more people are turning to equity release.

Releasing equity to fund retirement and lifestyle is something that must be given careful consideration. Clients deserve extra protection when making such an important financial decision that will affect them for the rest of their lives and their legacy.

But while the FSA protects people who are victims of misselling, it does not offer minimum standards for products which is where Ship comes in. The Ship logo acts as a guarantee. It shows that product providers provide fair, easy to understand plans and full presentation. Any scheme endorsed with the Ship logo will be properly explained and safe. It will come with the three following terms the client has the right to live in the property for life, the client can move house without any financial penalties and the product comes with a guarantee of no negative equity.

Ship also makes sure that consumers get independent legal advice to oversee the transaction and that the product provides either a regular monthly income or cash lump sum. These guarantees might not often come into play when you look at the situation we have today low interest rates, a booming property market and people living longer. But if house prices go down, the guarantee of no negative equity will start to apply more frequently and if people decide that trading down is a better option for them, the option to move house will be valuable.

Ship rules mean that brokers need to talk to clients about all the options available which might include moving to a smaller house or getting financial help from the state. Ship members understand that equity release needs to be considered as part of the financial planning process rather than just a product to be sold. Looking for the Ship logo will give consumers peace of mind and help them find the right plan.

Things can go wrong sometimes and Ship provides a formal procedure for handling complaints which includes being able to fine Ship members up to 25,000. Complaints are handled via an independent complaints board which includes representation from Help the Aged.

Since October, the FSA has regulated all equity release with the exception of cash-reversion schemes. Leaving reversions out of the regulated regime triggered concerns over potential misselling. Pressure on the Government has brought an assurance of regulation in the future. In the meantime, Ship has a code of practice to regulate this sector.

Ship members need to ensure that the appropriate advice has been given to clients. This is demonstrated by a product confirmation letter covering trading down, moving house, state benefits and other key areas.

This code, along with FSA regulation, has increased consumer confidence in equity release and the 1.2bn market is likely to grow to 5bn over the next couple of years.

When you look at the demographics you can see why.

In 1901, a 65-year-old male lived for an average of 10.5 more years, by 2001 this had risen to 15.9 years. For 65-year-old females, the increase in life expectancy has risen from 11.5 years in 1901 to 19 years in 2001. By 2013, there will be an 18 per cent increase in over 65s and by 2020, 40 per cent of the population will be eligible, by age, for an equity-release scheme. House prices have risen from an average of 2,189 in 1960 to 154,107 today. More people own their homes, with around 69 per cent of the adult population owning their home.

The opportunities for brokers to sell equity release are greater than ever. In 2001, 62 per cent of plans were sold directly but in 2004, 65 per cent of sales were through intermediaries. To capitalise on this, brokers need to work with product providers, the regulator and Ship to provide a professional and expert service from start to finish.


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