Lenders call for regulation of home reversion schemes

The Council of Mortgage Lenders today called for the regulation of the home reversion plan market, following the release of a Treasury consultation document on the subject.

A home reversion plan is a form of equity release, a loan where homeowners borrow against the value of their house to free up a lump sum or a regular income. The loan is repaid when the house is sold. Equity release schemes are aimed at consumers who have paid off all or most of their mortgages and therefore tend to be older and potentially more vulnerable.

Under a home reversion plan, the homeowner sells part, or all, of the home to a reversion company that allows the homeowner and his or her partner to continue to live there for the rest of their lives. After both have died, the proportion of the home that was sold becomes the property of the reversion company.

Safe Home Incomes Plans (SHIP), the main trade body for those selling equity release plans, estimated in 2002 that the equity release market was worth some ?852m, a quarter of which (in terms of value) could be attributed to reversion plans. According to the Treasury, there are currently 30 firms involved in the equity release market.

The consultation document, published by the Treasury following the government's announcement in the pensions green paper that it would be "looking at options to create a level playing field for the regulation of equity release and home reversion plans, to protect consumers and make the market work better," seeks views on whether home reversion plans should be subject to FSA regulations.

In its response to the consultation, the CML declared that failure to regulate could leave consumers seriously disadvantaged. The nature of the market, says the CML, means that consumers need strong protection against the possibility of unscrupulous sales techniques or, if the consumer decides to go ahead with a reversion plan, unfairly low property valuation.

Jackie Bennett, senior policy adviser at the CML, commented on the consultation document. "Failure to regulate reversion schemes would cause confusion in the equity release market," she said. "It would also deny reversion scheme customers access to the Financial Ombudsman Service or the Financial Services Compensation Scheme if things go wrong. Given the sensitive nature of the equity release market, it is essential that the Treasury put in place robust consumer protection measures to bring reversion schemes into line with lifetime mortgages."