Equity release, a growth market for the past five years, has been targeted by the FSA in its most recent consultation paper.
The regulator says it intends to change the term used to describe mortgage-based equity release products to the “lifetime mortgage” as well as proposing that individuals advising on the product will require an additional, as-yet unspecified, qualification separate from the compulsory MAQ and CeMAP qualifications.
The FSA classified lifetime mortgages as the sole 'high-risk' product due to the risks of interest roll-up, which can rapidly increase the level of debt. Negative equity, the possibility of the client losing means-tested benefits and the prospect of reductions in inheritance left to family members in case of death are also concerns. The FSA also states that restrictions on people such as carers moving into the property may limit clients' access to care in later years.
Mark King, managing director of West London-based Crown Equity Release, says: “I quite like the term lifetime mortgage. Applicants must understand that if they live a long time and property prices don't go up, then there may not be anything left for their children.
“If they had done a reversion, however, they could have sold half of the house and left half for their estate. However, it's a comparatively new product and I do have some concerns whether there is sufficient knowledge in the marketplace among brokers.”