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Equity Release Schemes

: I congratulate my hon. Friend the Member for Leeds, East (Mr. Mudie) on securing the debate. He is a distinguished long-serving member of the Treasury Committee, which in my experience over recent years has acted as an effective inquisitor of the Government. It is also an effective champion of consumers, especially in the financial services sector. My hon. Friend has played a part in giving some high-profile companies a hard time in front of the Committee. He has certainly done so with some of the providers referred to in this morning's debate. I say to my hon. Friend that I will make sure that the chairman and chief executive of the Financial Services Authority receive a full transcript of the debate. I know that they will take carefully into account his specific comments about certain products and companies. I am certain that the FSA will take into account the broader comments that have been made in the debate as it puts in place the full regulatory cover that we intend to result from the legislation passed last year. Like my hon. Friend, I pay tribute to the work of the Consumers Association, and in particular the work of the publication Which?. With other publications, it plays an important job in providing in-depth, well-researched and reliable information to consumers in such matters. He was right to say that the last time that equity release schemes were fully debated, it was before the Government made moves to regulate in this area. I welcome the fact that in opening the debate, he said that there was no doubt that things had got better since then. I welcome the debate; now is a good time to take stock because, as some contributors have said, many anticipate an increasing market in equity release, based on the regulation, and the fact that it should give greater confidence to consumers and lead to better products, and to the better provision of those products. However, while stressing the potential of this market, it is worth keeping its scale in perspective. The SHIP—safe home income plans—group produced figures that suggested that the value of new lending in the equity release market in 2004 was just above £1.2 billion. That means that the size of the equity release market in that year compared with the volume of overall mortgage lending was less than 1 per cent. While the number of firms specialising in equity release is only 57, lenders and brokers in the more general mortgage market total almost 14,000.As the debate has made clear, it remains a fact that the products are complex. They can be valuable to consumers, but accurate information, good advice and care is required when taking them out. My hon. Friend the Member for Leeds, East asked specific questions. He referred first to mystery shopping and talked about discussions that Ministers plan to have with the Financial Services Authority about some of the worries that he thinks were arose from the mystery shopping exercise. As a result of the exercise and the FSA's review, many main trade bodies have issued new guidance to their members. The FSA remains in active discussion with the industry and consumer groups about how to secure higher standards of advice for consumers. My hon. Friend will know, better than I do, that the FSA holds firms to account and has been clear that it will take a hard line with those that do not sort out the problems about which it is concerned. As my hon. Friend will be aware from his work on the Treasury Committee, the FSA is operationally independent of the Government. However, it is required by law to ensure that regulation is effective and proportionate. The hon. Member for Twickenham (Dr. Cable) raised his concerns about the timetable and the process for getting the regulation in place, especially home reversion schemes. The first step towards bringing the arrangements into full FSA regulation was the primary legislation that enables home reversion plans to fall within the scope of potential FSA regulation, and that received Royal Assent last year. The second step is the secondary legislation required to amend the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to bring home reversion plans into FSA regulation. The Government—led, of course, by the Treasury—are preparing for consultation on that stage. The third stage is for the FSA to draw up and consult on the rules that it proposes regarding sales of home reversion plans, and the fourth is for firms then to apply for permission from the FSA to sell home reversion plans. The Government have a commitment to allow 12 weeks for public consultation based on secondary legislative proposals. Further down the track, the FSA normally needs to allow a minimum of six months between the publishing of its rules and the regulations coming into force. I concede to my hon. Friend the Member for Leeds, East that some may consider that process to be somewhat lengthy, but I assure him and other Members that this process is currently proceeding very smoothly, and my hon. Friend the Economic Secretary to the Treasury and I do not anticipate any unnecessary delays. I welcomed the presence, and brief contribution, of my hon. Friend the Member for North-West Leicestershire (David Taylor). He is a former accountant and I welcome his interest in, and concern for, the consumer. I regret that he has been unable to stay for the conclusion of the debate, but I will ensure that he receives a copy of the Official Report so that he can catch up with the points that he has missed—perhaps that is a threat rather than a promise. The hon. Member for Twickenham correctly stated that there is nothing wrong in principle with equity release schemes, although he has concerns that in certain circumstances they may not be fully appropriate for the consumers who purchase them. He asked a number of specific questions about backdating, scope, value for money in transactions and independent valuations. I expect that he will appreciate that those specific matters will be settled during the period when secondary legislation is being made, and in particular, when the FSA draws up proposals for the detailed rules. The hon. Gentleman made a point of stressing his participation in debates during the passage of the Regulation of Financial Services (Land Transactions) Act 2005, and some of the issues that he raised—such as the de minimis question—were discussed during the consideration of that legislation. I think that on that issue it was agreed on all sides—the hon. Gentleman can correct me if I am wrong—that a de minimis rule risked distorting behaviour; it would probably allow unscrupulous firms to avoid the regulation intended by the legislation by dividing a loan up into more than one loan in order to keep below any de minimis threshold.