The IFA says that the market must be regulated to provide consumers with the maximum level of protection and to remove some poor sales practices which can lead to people being mis-sold plans.
A reversion plan enables a homeowner to receive a cash payment by selling a percentage of their property to a reversion company. The resident retains occupancy rights for life, and the freedom to move whenever they choose. When the property is sold, the equity is divided according to the share of the property belonging to the reversion company and the percentage still owned by the homeowner.
Colin Taylor, Managing Director, Key Retirement Solutions said: “The Treasury’s consultation document on regulating the reversion market, which was published today, places too much emphasis on the cost issues relating to regulation and not enough on protecting the consumer.
“Nearly all retail financial services products sold in the UK are regulated but no one questions the cost implications of this on people’s pensions, for example. It is widely accepted that this protection is needed and that it is in the best interests of the consumer. We see no reason for the reversion market to be any different. If anything, regulation is even more important because you are dealing with elderly and sometimes vulnerable people whose home is often their only major financial asset and which they also have very strong emotional ties to.
“The government should not be looking at whether to regulate the reversion market but how soon they can do this.”
There are two main issues which KRS says regulation of the reversion market should focus on:
1. Misleading offers and poor value to customers
Some reversion plans rely on small investors to finance their schemes. This can lead to poor sales practices such as enticing customers with strong offers which they later drop when they find they can’t obtain support from the individual investors they rely on to finance their plans. This practice should be banned.
It is extremely difficult to assess the value of the business sold by these companies but KRS estimates that last year they could have sold plans worth up to an estimated £40 million. KRS will no longer sell reversion plans provided by these companies.
2. Lack of legal advice
Some companies that sell either reversion plans or mortgage related equity release schemes do not insist on customers seeking independent legal advice from solicitors who are working solely for them. KRS believes it is essential retired homeowners seek this before purchasing an equity release plan and that companies should insist on this.
Colin Taylor, Managing Director, Key Retirement Solutions said: “The equity release market has had a chequered past and it is important that it is whiter than white. Regulation is needed to achieve this.”
For further information on home equity release schemes, call Key Retirement Solutions on 0800 064 7075.
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