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Mr. Philip Hollobone (Kettering) (Con): Today is a very special day for me. Four years ago today, my wife and I were married in the Kettering constituency, and my hon. Friend the Member for Cities of London and Westminster (Mr. Field) was with me on that occasion. Little did we think that, four years on, we would be sitting here on a sun-drenched Thursday afternoon discussing the delights of this Bill. I am hoping that placing Mrs. Hollobone on the parliamentary record might prove some compensation for my not being with her this afternoon.
I am delighted that you have called me, Mr. Deputy Speaker, because this Bill has tremendous relevance to my Kettering constituents. The percentage of home ownership in the constituency is high and rising, the age profile of the local population is high and rising, and life-expectancy—thank goodness—is increasing. House prices have risen a lot, especially in the past decade, and continue to do so. Many local residents want to remain in the homes that they have lived in all their lives. They do not want to sell them and move elsewhere. As has already been said, taking out a mortgage and buying a house is for most people the single biggest investment decision of their lives. I share the view of those Members who have said that the number of equity release schemes is likely to increase in the years ahead, as the British population's age profile rises.
My main theme is that, as a new Member, everything to do with Parliament and its procedures is new to me, including the way in which the Government bring their
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legislation before this House, but in this regard there is one thing that strikes me as odd. This is a relatively uncontroversial Bill and it is generally agreed that the Government's proposals are broadly right. The Bill consists of only two clauses and enjoys the support of organisations such as the National Consumer Council, the Association of British Insurers and the Council of Mortgage Lenders. It was first proposed in 2002, yet here we are in June 2005, discussing its implementation. In the intervening three years, the equity release market has exploded. While the Government and Parliament have gone through all the necessary procedures, nothing, in effect, has been done in law to protect consumers from the dangers that we all realise are inherent in this marketplace.
I shall cite some revealing figures. By the end of 2003, there was almost £2.9 billion in the lifetime mortgage market, with 69,000 lifetime mortgages having been taken out. That market in itself increased by a staggering 69 per cent. in 2003 alone. In 2004, a further £1.2 billion-worth of equity release schemes were taken out, of which some £45 million-worth were to do with home reversion products. According to the Government's own estimate, the equity release market in 2005 is likely to be worth some £1.5 billion—an even higher figure than that for 2004.
The market has been exploding while we have been waiting for the Government to introduce legislation to address everyone's concerns, and there have indeed been concerns in the marketplace. In 2003, the home reversion market totalled some £129 million, yet because of the lack of regulation and the uncertainty surrounding its introduction, that figure fell to £45 million in 2004.
While the procedures that the Government are going through to get this legislation on to the statute book may be necessary, they have been unnecessarily protracted, given that the Opposition parties support such legislation. As I said, the idea was first floated in 2002. In June 2003, the then Chief Secretary to the Treasury announced that the Government were going to introduce
"legislation to bring mortgages and the selling of general insurance within the scope of Financial Services Authority (FSA) regulation".—[Official Report, 5 June 2003; Vol. 406, c. 33WS.]
We then had to wait until November 2003 for the Government to publish their "Regulating Home Reversion Plans" consultation paper. However, a month later the then Financial Secretary argued that, in fact, home reversion products are
"fall outside the scope of the Financial Services and Markets Act 2000."—[Official Report, Westminster Hall, 17 December 2003; Vol. 415, c. 280WH.]
Then, in July 2004, a further consultation document, "Defining Home Reversions", was published and the consultation was on the content of the definition of these products. We then had to wait until December 2004 for the Treasury to publish its summary of the responses received. In January 2005, a ten-minute Bill was introduced to enable these activities to be regulated. Finally, after the eighth stage in the process, the two-clause Bill was announced in the Queen's Speech this May.
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As if that were not enough, as I understand it, there are still four stages to go. This afternoon, we are at the stage in which the Government introduce primary legislation to deal with the issue. We are told that in the next stage the Government will consult and bring forward secondary legislation to amend the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. The FSA will then draw up and consult on rules regarding the sale of home reversion products and, finally, firms will need to apply for the FSA's permission to sell them.
I may be naive, but it is not unreasonable to make the point, on behalf of local residents in the Kettering constituency, that the wheels of government need to be far more responsive to the genuine needs of the people we represent. Taking so long to come up with legislation that enjoys cross-party support and the industry's approval strikes me as disappointing. When the rest of the world is speeding up, it seems that Parliament is in many ways slowing down.
Will the Government provide more clarity on when the legislation is likely to come into force? In the intervening period before the new rules and regulations hit the statute book, will the Government take steps to give consumers extra protection to prevent them from falling victim to people who want to sell more of their products? I recently went on to the world wide web to find out about a variety of equity release products. Some looked very reputable with the SHIP organisation—safe home income plans—doing its best to control the industry. One responsible website said clearly in the small print:
"Reversion schemes are not regulated at the moment, although the Government has agreed that they will be regulated by the FSA in the future".
Fair enough—that is all in black and white. At the end of the product advice, however, it said that XXX equity release company and products were provided through YYY Ltd., which was "organised and regulated" by the FSA. The Minister will know, as we know, that it is the company that is authorised and regulated by the FSA, but to the ordinary man and woman in the street, who may not be familiar with this type of product, that creates the firm impression that the equity release product itself is regulated by the FSA. My worry is that my constituents may fall victim to misunderstanding the small print in some of these publications.
I am delighted to have had the opportunity to speak this afternoon and I am keen to listen to the contributions of other hon. Members. This is an important debate and we will all have constituents who will be affected by the impact of the legislation.
1.24 pm
Mrs. Maria Miller (Basingstoke) (Con):
First, I congratulate the hon. Member for Ealing, Acton and Shepherd's Bush (Mr. Slaughter) on his excellent maiden speech. I stood in the same shoes not so long ago and I know how it feels. I have rather fond, if painful, memories of the hon. Gentleman's constituency, as I gave birth to my third child in Queen Charlotte's hospital. Interestingly enough, it is located next to Wormwood Scrubs and affords to women in labour spectacular views of the training area.
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More and more older people are seeking to release equity from their homes. As the hon. Member for Twickenham (Dr. Cable) said earlier, the sale of equity release plans is expected to increase from £1 billion to about £4 billion in coming years. Home reversion schemes currently account for about £45 million worth of the market. The sector is likely to grow significantly because of the shortfall in many pensions. The collapse of final salary schemes and the extensive burden of tax on pension schemes means that, all too often, my constituents in Basingstoke are looking for new ways to make ends meet. We should do all that we can to ensure that people can buy the available products with a level of confidence. There is a high level of home ownership in Basingstoke and many older people living in the constituency are worried about their pensions and likely to consider these products to help them meet their financial needs in the future.
Currently, the different equity release schemes are subject to very different types of regulation, which, as my hon. Friend the Member for Kettering (Mr. Hollobone) said a few moments ago, can be somewhat confusing. Home reversion is subject to voluntary regulation, but schemes with similar or lower levels of risk could fall under the Financial Services Authority. This sector deals with elderly people and we should be offering them the same safeguards that are available in other sectors of the financial services market. The products are complicated and the decision to undertake a home reversion equity release scheme should not be taken lightly. There are complicated implications for those who may be considering taking them up as an option to boost their pension incomes. Some of the people concerned may have had limited experience of financial services and products in the past.
We are fortunate that many charities have taken up this problem. Age Concern has issued a number of fact sheets and has an excellent website that sets out the problems in detail, and Help the Aged has set up an equity release service in order to support those who feel that they need more advice on the subject. All too often, however, the charities are asked questions that are difficult to deal with and they are often asked to give advice that is perhaps inappropriate for voluntary organisations. Even if those who contact the charities seek professional advice, they will not have the same level of protection against mis-selling that they would for a regulated product. Evidence suggests that change is needed, so let me use an example to highlight it.
Age Concern was contacted by a woman who reported that her neighbours had taken out a reversion scheme five years ago, which involved selling 90 per cent. of their property. They were receiving a modest monthly income from it, but had lost nearly as much in benefits. The husband could not read or write and at the time the decision was made to take up the plan, the wife was in the early stages of dementia. The neighbour felt that those people should not have taken out the scheme and had not fully understood the implications of what they were doing. They were having considerable difficulties trying complain about the advice that they had been given.
It is difficult to quantify the number of people who may now regret taking out reversion products and it is not possible to judge whether they were mis-sold, but it
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is certain that the complexity of these products leads many organisations, including Help the Aged and Age Concern, to believe that regulation should apply to home reversion schemes. Regulation should be able to provide a more level playing field, which could be useful both for the providers and the purchasers. It would ensure that the same cost of entry to the market applied to all providers. It would also give purchasers the same level of confidence and protection afforded by other equity-release products.
Good advice is vital. People must understand the risks involved in changes in interest rates and house prices when they undertake these plans, and that the schemes are often not portable. People who want to downsize could therefore find themselves trapped in inappropriate accommodation. As I said before, the means testing of benefits must be taken into consideration when home equity release schemes are considered. Once made, such decisions are difficult to change and so they must not be regretted.
In the past, this sector of the market has not enjoyed a great reputation, which has meant that the larger lenders have not entered the home reversions market—possibly for fear of the risk to their reputations. That may be another reason why it is time to put more formal regulation in place, but I want to draw the Minister's attention to various difficulties that he should consider as we move forward.
As my hon. Friend the Member for Cities of London and Westminster (Mr. Field) said, regulation can place a heavy barrier against market entry, especially for smaller providers. It will cost about £11 million to put the regulation in place, and ongoing costs will amount to about £5.4 million. I fully understand the merits of the FSA, but it has not always been the panacea for all ills. Some people say that it is more about ticking boxes than protecting customers, so we must ensure that everything possible is done to encourage a competitive environment in the financial services sector.
The FSA must draw up its own rules on the sale of home reversions and put those rules out to consultation. I hope that that can be done in a way that protects consumers and promotes and supports innovation in the market. As has been said already this afternoon, this could become a very important sector of the financial services market in future.
Equity release is a growing market, as we have heard, and we must take into account the fact that its growth is often due to the inadequacy of people's pension provision. Without good advice and protection against mis-selling, another financial scandal could happen in the future. It is far better to introduce regulation before another major mis-selling problem arises than to allow a problem to occur in the first place.
1.32 pm
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