Article | August 2006 | by Duncan Young
FSA Consultation
The separate consultations by the Treasury and the FSA on regulating the home reversion market are over and the results are awaited shortly. However the framework is pretty clear.
The Treasury consultation focussed on a process rather than an outcome and that is unlikely to change because it would require fresh legislation. By this I mean that the Treasury has laid down strict rules on what constitutes a home reversion transaction. If you are inside them you are regulated, but if you do not meet any one of the criteria, then you are not. As the rules are narrowly drawn it is probable that certain sales processes that currently are considered to be equity release will not in fact be regulated. The main one of these is where a lifetime lease is sold for a premium by the product provider. Probably in excess of £100 million of such transactions have been completed over the last five years. So much for regulating the market then.
The FSA is doing its best to fill in the gaps in the Treasury document, but that has thrown up some surprising results. The FSA is going to regulate the market from soup to nuts including the final stage of the process namely the end investor. The reversion investor market has been characterised by a few large corporate investors such as AMP and Stalwart, now both deceased, a number of smaller corporates such as Home and Capital and Hodge and now Retirement Plus. There us also a myriad of smaller investors who will now have to be authorised to continue and the expectation is that many will decide the cost and hassle is just too much. The FSA expects that post regulation that there will only be six reversion providers. Already portfolios and businesses are being touted around. All this is a pity as competition and diversity are important.
So to sum up, come Spring 2007 when the market should be regulated, products that are equity release will still be sold unregulated and the number of players will have shrunk significantly. I don’t know what the intention of the Government was, but this does seem a strange outcome. One has to trust that the regulation of the surviving players makes all the effort worthwhile and that consumers benefit accordingly.
The pity is that the Treasury did not set up its stall to provide a system which embraced the total market, with sufficient flexibility within that, to cater for future developments.