As Shadow Financial Secretary to the Treasury I have recently been involved with the development of the Finance Services (Land Transactions) Bill which includes new regulations on home reversion or equity release schemes.
Equity release allows a home owner to sell all or part of his or her house at a discounted rate to a regulated provider in return for either a lump sum or income while continuing to live in the house rent free for life. It is my belief that such schemes will become increasingly prevalent and therefore it is crucial that Parliament creates a safe and secure environment for the consumers of such financial services.
The stream of adverse publicity in the financial press during recent years over equity release has caused many people to ignore innovative ways of providing an income from the capital value of their homes which might very well have been of great value to them.
Today much is being done to help consumers making better, more informed choices and to create a level playing field in this rapidly evolving market. As life expectancy increases we should all welcome innovative new ways for people to utilise, during their lifetime, the equity that they have accumulated in their main residential home. This should help the elderly to live with dignity and independence.
My role in the current debate has been to ensure that the new rules in the legislation are not overly complicated and achieve their goal with the minimum of regulatory burden. Above all, I want to see a flexible approach to equity release as a long term and valuable part of the nation’s financial planning choices, especially in the light of the forthcoming pensions crisis which everyone now recognises.
Today, for the vast majority of the population, mortgages are the largest single financial investment they are likely to make in the course of a lifetime. Buying an equity release scheme has financial planning, tax and inheritance implications, and the group most at risk is the elderly.
Thankfully, people are living longer. Countless millions of Britons are building up personal wealth, predominantly in bricks and mortar, in a way that was unthinkable only a generation ago. Many, as they get older, are naturally reluctant either to sell off a long-cherished family home full of memories of a life well-lived. Similarly, others wish to avoid the disruption and displacement of a house move in later life. Nevertheless, as pensions returns?whether state, occupational or personal?become ever more unreliable, there will be an increasing clamour from home owners to utilise some of the equity they have in their home to cover the cost of day-to-day living.
That, I suspect, will not apply only to the retired or semi-retired. I believe that in many ways it is a welcome trend. I must confess that I have always been a little uneasy about forcefully defending either side of the argument in the debate on the funding of long-term residential care for elderly home owners. The current arrangements allow only a very small holding of financial assets before deductions on a pound-for-pound basis for the cost of care. Naturally, that is a tremendous disadvantage to lifetime saving and the taking of individual financial responsibility. By the same token, it is rather perverse to spend public money to enable the beneficiaries?generally a younger generation?to inherit an estate intact, while being unwilling to take on some of the responsibility for elderly relatives during their later years. I fear that equity release schemes alone will not be enough to resolve that long-standing issue, but I hope that they will go some way towards reflecting the reality of modern living.
It should be emphasised that such schemes will not only benefit the elderly who wish to live in dignity and independence. I reckon they will also be adopted by middle-aged parents who have paid off all or most of their mortgages, but now want to help their children to get on to the housing ladder.
I believe that over the next few years we will hear much more about the difficulties facing those who are currently in their twenties, and other young people who are yet to enter the workplace. What worries me in the current debate about pension provision, for example, is that most current thinking across the political spectrum amounts to little more than a pyramid sales scam against the young.
We must remain determined to protect investors, savers and home owners comprehensively from the mis-selling of financial services and products. The record to date of the Financial Services Authority has not bred much consumer confidence but I believe that maintaining growth and competitiveness must be at the heart of the regulator’s agenda. There is no reason why that should be at odds with concern about financial stability and consumer protection.