If Davies’ comments are reflective of the views of the regulator they will no doubt be featured in the feedback that will follow the FSA’s recent broker visits and second round of mystery shopping.To address one of the questions raised by Davies, it is understandable that drawdown is being targeted by the FSA. After all, the question that must be central to the fact-finding process in the equity release market has to be more than – how much money do you want? We should also be asking – when do you want it? In considering this we have to be mindful of the structure of equity release products to ensure consumers understand the criteria involved, and that these are stressed to them and documented. We must remember that availability of funds is not guaranteed and it is this that brings the question of emergency funds into play. There are fundamental issues that need to be addressed regardless of the availability of drawdown funds. The purpose of an emergency fund has to be taken into account – these are monies that are accessible should unforeseen expenses arise for borrowers. Drawdown providers have criteria for the drawing down of funds that typically involve a waiting period before any money can be taken out. All providers stipulate minimum amounts that must be taken out, the average sum being 5,000. There is also the question of the waiting time before the additional funds hit a client’s bank account to be considered, as this can turn the issue on its head – how can access to draw- down cater for emergency situations? The size of emergency funds should be another focus of attention. It is important that companies have specific criteria they apply to the handling of emergency funds and that they discuss with their clients what emergency funds are for, and just as importantly what they are not for. Having 20,000 sitting in a bank account is arguably well outside of the scope of an emergency fund. However, that amount may be required for other purposes and the question then revolves around the documentation that will be involved. As always, the devil is in the detail and many of the issues in the equity release market centre on the advice process and the thoroughness of documentation.
I read with interest the comments of Mike Davies, the compliance director at BDS, reflecting on the Financial Services Authority\'s latest mystery shopping exercise in the equity release sector in a recent issue of Mortgage Strategy.