In the mortgage world, probably the best examples are the sale of self-cert loans to em-ployed people, prime loans being sold through sub-prime len-ders and lifetime mortgages – although in each of these cases there are circumstances where the products can be appropriate.
Lifetime or equity release mortgages have always been tricky. I’m sure many readers will remember the problems and resulting significant litigation that was involved with the sale of home income plans.
These home income plans evolved into what came to be known as safe home income plans, but as a practising expert I can tell you that a large slice of my time is still taken up in working on litigation cases involving the sale of these shared appreciation-type mortgages.
You only have to look for a moment at the target market for equity release schemes or lifetime mortgages to spot the pitfalls.
Customers tend to be older and they may also be slower. They might have concerns about products but not be able to satisfactorily question their advisers.
Their family might also have worries at the time of sale or subsequently, when their inheritance is less than they thought it would be.
None of this means lifetime mortgages are not appropriate in some circumstances. Indeed, a roll-up interest-only loan allowed my grandmother to upgrade the central heating in her house and remain in it for the rest of her life. Of course, all mortgage documentation has to be clear, fair and not misleading, and with this type of lending this is even more important.
But when it comes to the selling of high risk products, the Financial Services Authority’s website offers advisers an enormous amount of support. Its recently issued guide to good and bad practice when it comes to lifetime mortgages should be seen as a substantial resource and reference tool for brokers wishing to offer these mortgages and ensure their advice on them is of the highest standard.
Although it is only eight pages long, the FSA guide offers numerous examples of good and bad practice and should be a must-read.
And the regulator’s help goes further. It has produced a factsheet called Raising money from your home and although it does not require firms to provide the factsheet to clients, many do so to help raise their clients’ awareness of the issues that should be considered before taking out lifetime mortgages.
A cornerstone of all FSA regulation is relevant and appropriate training and competence schemes for brokers.
Training plans have to be focussed on the needs of in-dividual advisers. Those involved in giving advice on lifetime loans should seriously consider taking the Chartered Insurance Institute’s equity release qualification and its newly developed home reversion extension.
After all, becoming a well qualified adviser is one way of showing regulators and consumers that you are committed to the highest professional standards.