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Equity Release Schemes

: As usual, my hon. Friend anticipates an important point that I planned to make. I shall take the opportunity of his intervention to confirm that, for example, Norwich Union requires those who apply for one of the equity release schemes to borrow a minimum amount. Indeed, that is the situation with most, if not all, the providers. Someone may need only £2,000 or £3,000, but they have to take £15,000, £20,000—or, in an example that I have, even £25,000—over a long term. The time ticks away and the amount doubles in 10 years; it is quite frightening. Clearly, the figures produced by the mystery shoppers suggest that the customer's specific needs are not being investigated. As such products should be taken up only as a last resort, the fact that in too many cases advisers make no real effort to satisfy themselves that the customer has exhausted every consideration, and that equity release is the only way forward, means that the potential for mis-selling is arising, if it has not already arisen. The other sad thing about those details is how badly direct sales compare even with the less than satisfactory advice being given by independent financial advisers. The mystery shopping exercise has resulted in solicitors who deal with equity release being advised in a training course to refer any client who has been involved in a direct sale by the producer to an independent financial adviser immediately. All this information raises a series of questions for the Minister. As mystery shopping demonstrated that complex high-risk products—the FSA's description, not mine—are being sold unsatisfactorily under regulated circumstances, what conversations has the Treasury had with the FSA about putting an end to such practices? Will the Minister discuss with the FSA what follow-up is taking place with the advisers and firms that perform so badly? Will random checks be made with customers to determine whether such practices took place in actual sales? The Minister should consider how any delay in the FSA's becoming proactive on the checks may allow firms to avoid action. With mis-selling of endowments, not only were paper records available, but in most cases customers could advance arguments and describe the selling experience. With equity release, the elderly person may not have told his or her family what they signed up for, and it is only when the person has died and the estate is wound up that the existence of the contract becomes apparent. The customer would not be there to describe what happened, and the firm would be in a stronger position to deny mis-selling. Random checks seem the least that the FSA can do. Can the Minister can comment on that? I congratulate the Government and the Minister on introducing primary legislation on home reversion so promptly in December, but the latest word is that the FSA will not begin regulation until 2007—and that is on home reversion, which is an even fiercer instrument than the roll-up mortgage. I have been told that the timetable is in the hands of the Treasury. Can the Minister tell us whether that is so, and in view of the upsurge in sales of home reversion schemes, can he promise that he will take all steps possible to expedite the start of regulation? It is almost universally accepted that greater than ever care must be taken with the selling of such products, in view of the vulnerability of the target group. Schemes in the late 1980s and 1990s were ill designed, and are a source of customer unease even today. There is a lack of confidence that providers appreciate the need to ensure that this financial product, which is probably the most sensitive one on the market, is sold only to the most appropriate people. The sort of hard-nosed behaviour illustrated by the mystery shopping exercise, the response to the Which? report and the way in which the industry defends stories such as the one in The Mail on Sunday last week—in which an astonishing interest rate of 367 per cent. was charged, and defended, by a household-name firm—leads the public to worry whether their trust that the elderly are in safe hands is correct. I suggest that the Minister have immediate discussions with the FSA to agree steps towards telling the industry that investor confidence has been damaged too much in the past few years and that the mis-selling of such products is banned. It should be said that the remedy will be not only compensation but the stiffest financial penalties, and even the barring of firms whose selling of this product is found wanting. That is the least that we can do, bearing in mind the sensitivity of the product and the vulnerability of so many of the customers. I shall quickly draw the Minister's attention to some other aspects of the sale of such products. I have concentrated my remarks on how important it is that they must not be mis-sold by giving bad advice to the elderly. The way in which the schemes are marketed is also very relevant—not only to the elderly. Norwich Union has been running an advert seeking to sell its product to people at the tender age of 55. My hon. Friend the Member for North-West Leicestershire (David Taylor) obviously comes into this category, so he should perk up—[Interruption.] Or is he 45? In The Times on Saturday, Norwich Union ran an advert headed ““Over 55? Thinking of equity release?”” An attractive lady is pictured next to the heading, ““New York? New car? Something for the family?”” On visiting the website, it transpires that someone of 55 can get a loan for all those purposes, but the minimum loan appears to be an index-linked lifetime mortgage of £25,000. TheMail on Sunday the week before showed a gentleman of 55 in the same advert. According to actuarial tables, a lady of 55 can look forward to being around until she is 85, with a bit of luck, so this trip to New York, the new car or something for the family could end up costing her between £100,000 and £200,000, if we take the amount of compound interest and double up over 30 years. That is a staggering sum. Is the Minister content that a provider such as Norwich Union is selling such schemes to someone with five or 10 working years remaining? Would it make financial sense for this lady to commit herself to a possible 30-year loan—for an amount that she clearly does not need to pay for the items mentioned—instead of taking out a perfectly straightforward bank loan? If Norwich Union were doing its job, if someone of 55 asked for an equity release they would be directed to another product straight away. It is clearly not appropriate for someone to sign up for this product when they have the possibility of earning additional income through work.