Test best practice advice against original rules

It\'s easy to lose sight of the requirements of regulation in the equity release market.

By this I mean we are presented with dozens of views about what is best practice and it is difficult to know who is giving out the right signals.

The best, and in many ways the easiest, way to test these views is to revisit the rules and test advice on best practice against them. This may seem like an unwelcome task but it is necessary if you wish to trade safely.

MCOB 8.5.15 G provides guidance when considering the suit- ability of lifetime mortgages. It states:

In complying with MCOB 8.5.4R a firm is not required to consider whether it would be preferable for the customer to:

(1) Trade down (that is release funds by selling his existing property and purchasing a less expensive property) rather than enter into a regulated lifetime mortgage contract;

(2) Rent a property, rather than purchase one or enter into a regulated lifetime mortgage contract on his existing property; or

(3) Delay entering into a regulated lifetime mortgage contract until a later date on the grounds that property prices would have changed in the intervening period, or that the interest rate in relation to the regulated lifetime mortgage contract would be lower, or both.

Many people considering or even advising on lifetime mortgages will be surprised by the above, in particular point one as this is regularly held up as being the most important consideration.

Why has the Financial Services Authority specifically given this guidance? It is clear to see why the above points are stressed as they are too complicated to sensibly debate with clients.

Some people would have us believe that we should enter into a lengthy debate about these guidelines – in particular points one and two. The first two points involve clients selling up and moving with differing consequences. The issue is that we cannot possibly understand the emotional aspects of what each client desires.

The principle of moving should be raised as an alternative but beyond that the considerations are far too wide-ranging.

So take on board the comments about best practice but test them. After all, we are first and foremost responsible for complying with the requirements of MCOB, not those people who simply don’t like equity release.