The announcement last week that the Treasury will now include home reversion in the regulation of equity release is being hailed as a welcome change of heart on the part of the Government.
Most people in the industry and many consumers felt strongly that home reversion should be regulated. However, before last week's news, the battle to convince a headstrong Treasury seemed lost.
The Government's rethink means that an unusual alliance between the industry and consumers is claiming a hard-won victory.
Arguably, at the centre of the lobbying was equity release body Safe Home Income Plans.
Chairman Jon King agrees with most of the industry that the Treasury's back-tracking was a big surprise. Just days before the announcement, the feeling was that the Treasury was not going to budge and King believes this was harming consumers and providers.
“The amount of business going through home reversion has dropped over the past 18 months because of a lack of confidence in the product,” says King.
“This is unfortunate as it is a very robust product that has been around since the 60s, whereas other equity release models only appeared in the 90s. The industry as a whole has done well to educate the Treasury up to this point but further pressure needs to be applied in the future.”
Cicero Consulting senior consultant Mark Twigg is another lobbyist who welcomes the Government's change of heart.
He says: “To hear Treasury financial secretary Ruth Kelly talking about the need for a level playing field is a good result for the industry. I think we can now develop the kind of regulatory framework that firms and consumers can have some confidence in.”
However, Twigg warns that there is still a battle ahead. “This will be a drawn-out process and regulation is not going to happen any time soon,” he says.
He points out that progress depends on the Government allotting Parliamentary time for the legislation — something that is not likely to come this side of the next general election. “The Government has made clear this is the beginning of the process and there is a lot more consultation to look forward to,” he warns.
Twigg makes a call to arms for IFAs, saying they have an opportunity to shape regulation before it takes effect.
Sofa managing director Bob Bullivant, formerly of closed equity release innovator Britannic Retirement Solutions, has been arguing for the inclusion of equity release for the past two years. He says the Treasury's announcement is an example of common sense prevailing.
“I always felt the power of the argument and the logic of home reversion's inclusion would reign through,” he asserts. Bullivant believes the victory came about thanks to the formation of an “unholy alliance” of consumer bodies, providers, advisers and trade bodies. “It is hard to imagine all these various groups coming together on a single issue like this ever again,” he says.
Consumers' Association senior policy adviser Lawrence Baxter believes the industry and consumers have scored a victory but he echoes other lobbyists when he says the implementation of a regulatory environment for home reversion will take considerable time. He believes the Treasury will have great difficulty defining home reversion. “The Treasury is worried it will capture the wrong types of products when it tries to define home reversion. It is important it does not include things such as private sales of property. Consumer confidence in this product is very low and it will take some time to increase,” says Baxter.
However, Bullivant is certain consumers will soon begin to reap the benefits of upcoming regulation.
He says: “Now that it has been flagged that regulation will happen, you will see people starting to work towards it, just as we are with mortgages and general insurance.”
In the meantime, Ship is planning to introduce its own code of practice for home reversion schemes in an attempt to fill the regulation gap. The scheme aims to include a complaints procedure, new standards on product confirmation advice and tough penalties for noncompliant providers, and Ship hopes to get it up and running later in the year.
King says: “Regulation of home reversion plans is unlikely to take place for some time, and certainly not by October. Ship will introduce a tough new code of practice for providers very shortly.”
According to most estimates, regulation of home reversion will not be implemented for 18 months to two years. This takes into account the time the Treasury will need to define home reversion, the FSA's famed consultation periods and the likelihood of a general election.
However, Baxter believes European rules could cast an even longer shadow over equity release as they have with so many other financial products. He points out that the Government is presently battling to remove mortgages from the Consumer Credit Directive where, among other things, it is worried equity release could be caught in conflicting regulation.
He thinks trouble is brewing because most of Europe is unfamiliar with equity release and some countries, either through ignorance or in a bid to find a regulatory home for it, are trying to fold it into mortgages under the CDD.
Baxter says this is an important fight for equity release because its inclusion in the directive will further complicate any local progress towards its inclusion in FSA regulation. “Although the Treasury's announcement is a great win for the consumer and the industry, there is still a long road ahead until home reversion is finally regulated. A great part of that road may lie in Europe,” he says.