Of the £1.1 billion worth of new business written by Safe Home Income Plans (SHIP) members in 2006, home reversion plans accounted for only 7 per cent – similar figures to the two years previous. Had home reversions been regulated during these years, industry sources predict that at the end of 2006, home reversion schemes would have added another £100 million to the market. However, by the end of 2010, the Institute of Actuaries forecast that the equity release market will reach £2.4 billion by the end of 2010 and, should predictions from the SHIP members’ survey 2006 be believed, a reasonable percentage of this growth is expected to come as a result of the regulation of home reversions.
Get the daily news delivered to your inbox
Campaigning for inclusion
From 2003 and the announcement that home reversion schemes would remain exempt from regulation protecting lifetime mortgages and the rest of the mortgage market on ‘Mortgage Day’ in October 2004, SHIP has headed the campaign for inclusion. By presenting industry concern and persistent lobbying SHIP and others persuaded HM Treasury to engage in a formal consultation process for the case of home reversion regulation. We have welcomed the successive stages of the process leading to 6 April and the formal regulation by government of these products.
Without equivalent regulation for both equity release products, SHIP strongly believed that the consumer and adviser remained at an unfair disadvantage with informed decisions becoming increasingly difficult to make. Prior to regulation, SHIP also took its own steps to enhance consumer protection by establishing an independent Home Reversions Complaints Board in September 2004 and launched a checklist in 2006 to help advisers ensure that they cover all appropriate areas when selling both lifetime mortgage and home reversion products.
Download our news ticker
SHIP and the equity release industry as a whole has worked hard over the past years to establish a fully regulated equity release market. With last week’s official start of a level playing field, it is hoped that business potential within the market will be increased through the greater confidence standardised regulation will instil in both consumers and advisers alike.
Escalating interest
The expected growth in home reversions business post-regulation, predicted by SHIP members, is thought to arise from escalating interest and growing confidence among IFAs. Between 2004 and 2006 the number of home reversions sold, while small in volume, increased by 80 per cent. However, new business written by IFAs accounted for only 20 per cent of this growth. IFA advice until now has been disproportionably geared towards lifetime mortgages and many IFAs have hidden behind home reversions’ unregulated status. From last week, however, IFAs dealing in equity release are now obliged to advise on home reversion schemes alongside lifetime mortgages and, with a standardised arena with uniform regulation, SHIP members believe more IFAs will enter the equity release market - identifying the growing business opportunities it offers.
Find the latest industry jobs
The peace of mind that home reversion regulation will offer IFAs should also, in turn, stir among consumers a dormant demand. Industry sources last year claimed that one-in-five customers suitable for equity release were more suited to a home reversion plan yet may have not chosen the product due to its lack of regulation. With an increasingly ageing population and a decline in the rate of house price growth between 2004 and 2006 many potential equity release consumers shied away from borrowing against their largest asset with a lifetime mortgage but were also not encouraged to consider the alternative option of a home reversion scheme. It is hoped that from this month onwards IFAs will engage more with both product types and the pent up demand for home reversion plans can finally be unlocked, ensuring greater choice for consumers and increased business offerings for advisers.
Maintaining standards
To maintain standards of advice across both products, SHIP also announced last year that from August 2007 it will become compulsory for IFAs working with any of its 21 members to hold a lifetime mortgage qualification. Joint examinations with home reversion modules will be available to IFAs in Autumn this year and will fully qualify those who pass the paper to advise across the whole market.
Catch up on the industry buzz
Last week marked a welcome result for the equity release industry’s campaign to fully regulate the market. With IFAs now obliged to advise across both home reversions and lifetime mortgages and with a standardised platform of regulation and redress for both, IFAs should be encouraged to enter a market with clear business opportunities. If industry predictions of a pent up demand for home reversions ring true then regulation cannot but help boost the equity release market. However, it must be remembered that regulation alone cannot make quality products safe and for this reason SHIP will continue to enforce its code of conduct and ensure that consumers continue to receive the best possible products and guarantees from all who advise on equity release.
