Many equity release products currently being marketed are not mortgages and accordingly fall outside the scope of the Mortgage Code and will also fall outside the scope of the new statutory regime under the Financial Services Authority (FSA).
Specifically, the FSA will not regulate ‘home reversion’ schemes, one of the main types of equity release plans offered by firms. Under home reversion schemes, consumers sell at a discount the whole or a portion of the legal interest in their home to a reversion scheme company in return for a lump sum and the right to remain in the property on a lifelong lease.
The Government announced earlier in the year that it will review the scope of the FSA’s future regulation and will consult on extending statutory protection to other types of equity release schemes. It is essential the Government ensure that all consumers are protected, and the MCCB is encouraged that the Treasury will be consulting later this year on the options for regulating the sale of home reversion schemes.
MCCB continues to highlight the real risks that promotion of these products represents and, together with the Council of Mortgage Lenders (CML), has developed a leaflet ‘You and your equity release mortgage’ as an adaptation to the generic ‘You and your mortgage’ leaflet.
All lenders and intermediaries providing information on equity release mortgages are now required to provide their customers with this leaflet in accordance with the Code’s provisions. The MCCB is currently monitoring the extent to which firms comply with the new requirement.
The MCCB also works closely with the Council of Mortgage Lenders which announced in August that older homeowners borrowed nearly a half-billion pounds in equity release mortgages during the first half of 2003, more than double the amount borrowed during the same period last year. The CML estimated that 11,700 equity release schemes were taken out between January and June with the average loan at £43,000.
As the current industry regulator until the FSA takes statutory responsibility on 31 October 2004, the MCCB will ensure that its compliance monitoring programme will include checks to ensure that customers are being made fully aware of all aspects of the equity release/lifetime mortgage to which they are committing themselves.
