Home reversion plan omission warning

Brokers have warned that the Treasury&#39s decision to leave home reversion schemes out of FSA regulation could cause consumer detriment and confusion.

The Treasury does not consider that is has the power to give the FSA responsibility for regulating home reversion products – a type of equity release scheme that involves the sale of the property by the &#39borrower&#39 to the person providing the finance.

The Treasury says this is because they are not financial services products but are “sale and purchase arrangements in relation to real property”. Mortgage-based equity release is already covered under FSA regulation.

Respondents to the Treasury consultation paper warned that the two types of scheme were interchangeable and that the risks were greater with home reversion.

And Patrick Bunton, head of operations and compliance at London & Country, says: “We believe the equity release market is going to grow in significance and complexity in the future. The exclusion of one of the major types of product in this market could lead to confusion.”

Ray Boulger, senior technical manager at Charcol, says: “A lot of less competent mortgage brokers who do not become qualified will move into home reversion. This is quite a complicated product and a home equity release product is usually the better solution for most people. Selling inappropriate home reversion schemes could cause serious consumer detriment because they cannot get out of it having sold all or part of their property.”

But Mark King, managing director of London-based Crown Equity Release, says: “I am very pleased that home reversion is not being regulated. There is no risk because the customer must obtain a letter from a solicitor, who is in charge of whether they should proceed or not with these plans. But people must choose their own solicitor, not have one appointed for them.”