HL Deb 14 January 2003 vol 643 cc128-30


Baroness Greengross asked Her Majesty's Government:

What plans they have to regulate and promote the development of equity release schemes.

Lord McIntosh of Haringey

My Lords, the Government are giving the Financial Services Authority responsibility for regulating mortgage business, including mortgage-based equity release arrangements. In August last year, the FSA published its consultation paper CP 146 setting out its approach to regulating mortgage sales, including lifetime mortgages, which is the FSA's term for regulated equity release mortgages. It is expected that regulation of lifetime and other mortgages will come into force in October 2004.

As for home reversions, we announced in the Green Paper on pensions that we would be looking at options to create a level playing field for the regulation of equity release and home reversion plans. If we decide to regulate home reversions, the likely timescale would be a consultation later this year and we would then decide, on the basis of legal advice, whether secondary or primary legislation was necessary.

Baroness Greengross

My Lords, I thank the Minister for that reply and for the announcement about regulation. It is important that at last we can lay to rest the home income plans scandals of the 1980s. Can the Minister confirm that regulation across the equity release product range will be clear and consistent? That will be very important for consumer confidence and for the industry itself. Does the Minister agree that the vast potential for most older people in releasing housing equity to increase their retirement income is not being met and that only a very narrow band of people benefit? What more can the Government do to promote equity release—for instance, through tax credits or by looking again at eligibility for means-tested benefits?

Lord McIntosh of Haringey

My Lords, I hope that the noble Baroness, Lady Greengross, has read the consultation paper issued by the FSA. It promises a clear regulatory system in accordance with the Sandler report, which is in favour of simplified products and simplified sales processes. While recommending that report to her, perhaps I may commend the Age Concern document, published in July last year, on raising capital or income from your home. I found it excellent and very easy to understand.

Lord Saatchi

My Lords, is it not right that in the good old days, when people called a spade a spade, home equity release plans were known by their true name—that is, second mortgages—and seen as a rather dangerous way of raising money? Since then, have not the Government taught people the lesson that if you change the name of a product you can make it appear much less harmful? That is why the Government like to call means testing "targeting", spending "investment" and benefits "credits". Is it not as a result of those practices that the second mortgage, now sanitised with its new name, is responsible for pushing up the level of household debt in this country as a percentage of household income to a higher level than ever before in recorded history?

Lord McIntosh of Haringey

My Lords, what the noble Lord, Lord Saatchi, calls "the good old days" were the good old days of home income plans which, in the absence of adequate financial regulation brought in by his government, caused great scandals. If the noble Lord had listened to Angela Browning in the House of Commons today in an Adjournment debate on the subject, he would know how strongly she and other Conservative MPs feel about how badly the matter was resolved when his party was in power. As to changes of names, he should recognise that there is a difference between increasing an existing mortgage and some of the equity plans which apply whether or not there is a mortgage.

Lord Oakeshott of Seagrove Bay

My Lords, does the Minister accept that in principle there is no difference between home reversion plans—where, as he said, the Government are looking at options for creating a level playing field—and equity release and annuity schemes, which will definitely be regulated by the FSA from 2004? Given that under home reversion plans old people sell their homes outright, can we be assured that they will be treated in exactly the same way? Do the Government accept that, given the problems that pension funds now have, many old people will have to rely on their home for income in old age? Do the Government further accept that if that is not properly regulated, we risk another major misselling crisis, possibly on the scale of the pension misselling crisis of a few years ago?

Lord McIntosh of Haringey

My Lords, I thought I had made it clear in my original Answer that I entirely agree with the noble Lord, Lord Oakeshott. It is an historical fact that because home reversion plans are sale and purchase arrangements rather than financial services, they are not included in the scope of the Financial Services and Markets Act, but that does not mean that there should be any less protection for people who opt for home reversion plans. That is why I made it clear that we are looking at options to create a level playing field. We have to look at whether there is consumer detriment and at what should be the appropriate level of regulation. I am not saying that it will be exactly the same as for home equity plans, but the principle behind what the noble Lord, Lord Oakeshott, said is entirely true.

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