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Mr. Mark Field (Cities of London and Westminster) (Con): I realise that any self-respecting Opposition spokesman would by convention claim on reaching Third Reading that at least some of his party's concerns remained unresolved. I suppose that that is the case, although Her Majesty's Opposition cannot really claim that this Bill is an improvement on the one initially published in May. The fact is that our collective deliberations have made not one jot of difference to the wording of the Bill before us today. In fairness, that might owe more to the fact that this politically uncontentious piece of legislation contains the princely sum of two clauses. Perhaps it might be down to my effectiveness or that of my parliamentary colleaguesat least that is the story that I am sticking to.
In the four weeks since Second Reading, however, not only have we had a constructive Committee stage but we have lived through some tumultuous times nationally. The terrorist atrocities in London and the G8 conference in Scotland followed hot on the heels of the more uplifting, triumphant announcement that our capital city will host the 2012 Olympic games, and the UK's hosting of the series of Live 8 concerts. All of that has been packed into the past few weeks, during our consideration of this Bill.
We have also learned of eventful times for the Economic Secretary, who sped back to his native north-west from the Second Reading debate to attend his sister's wedding celebration. I know that it is common for young men to be fearful of their fathers-in-law, but I suspect that the newest arrival to the Lewis clan will have more cause for trepidation in his relationship with his new brother-in-law. The Economic Secretary also revealed in Committee his split allegiances: red in his political affiliation, and bluewell, sky blue at leastin footballing terms. I sincerely hope that, if only to ensure harmony around the dining table in the Lewis household, the Economic Secretary's new brother-in-law is not divergently schizophrenic in his own football and political allegiances. I am sure that if he were a Tory that would be bad enough, but for him to be a Manchester United supporter as well would be a step too far.
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As I warned in Committee, the universal political support for the Bill makes its scrutiny, however brief, all the more important. I should reiterate my own view: I would welcome any move to increase public confidence in home reversion or equity release schemes, not least in the light of the adverse publicity in the financial press that such schemes have received in recent years. It is important to stress, however, that the Bill's proposals are likely to apply far more widely in the years ahead than may be envisaged now.
Equity release will not be the preserve of elderly folk wishing to remain in the family home while releasing capital to make up for inadequate pension provision during retirement. I believe that the single biggest demand for such schemes in the years ahead will be from middle-aged people in the workplace demanding the opportunity to release equity in their homes to give their children a lift on to the otherwise elusive property ladder. In many ways that should be regarded as a welcome trend, but it also reflects the tendency towards greater indebtedness among people in their 20s, especially those choosing to attend university and staying on for post-graduate study.
As the Minister said earlier, during the Bill's progress we have received reassurances from the Treasury about its willingness to review the operation of the legislation carefully in its early years to ensure that the regulatory burden is kept to a minimum. I accept that our probing amendment to introduce the de minimis provision might in itself have led to unintended consequences. Certainly it is not our desire to lay open the risk of home reversion plans and ijara home finance products being exploited by unscrupulous lenders offering multiple loans to the same borrower at a level just below the threshold that Parliament might set. Nevertheless, I hope that attention will be paid to our concerns. Our main worry is that the sheer cost of regulation and administration is such that some larger providers might be dissuaded from involving themselves in equity release schemes just below a certain level. The risk is that that might result not just in diminished choice, but in a deterioration in the quality of service for some of the more vulnerable people seeking to benefit from the Bill.
We have also tried to express some of our more general anxieties about the operation of the Financial Services Authority. I am sure that we shall return to that theme, both in general debate and in debating other legislation. Let me stress again that we consider it crucial, if London and indeed Edinburgh are to remain highly competitive global financial centres, for all regulation to be practical and pragmatic in its approach.
There is little doubt that many market professionals here in London regard the emergence in the United States of Sarbanes-Oxley rules as a substantial hindrance to US competitiveness in financial services. As ever, their true effects will take time to work through the system. We accept that the FSA needs to get the balance right between consumer protection and promoting competition and competitiveness in a global financial context. We should, however, see the situation in proportion. The expansion of the FSA's powers to take in equity release, home reversion and ijara home finance products cannot be seen as an enormous expansion in the regulator's power.
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We entirely accept the need for more consumer confidence about these products, particularly given even stronger evidence that property is being used as a proxy for more pension planning by a generation of savers currently in their thirties. Market profitability and product innovation will be of key importance in a relatively immature market, and I have been reassured by the Minister's acceptance that his Department will keep the matter under regular review.
I thank my hon. Friends the Members for South-West Hertfordshire (Mr. Gauke) and for Forest of Dean (Mr. Harper), who provided such sterling support in Committee. It occurs to me that both were born in the 1970s. They are a constant reminder to those of us who are members of a slightly older generation that there may be some urgent self-interest in equity release schemes before the world is too much older. I also thank my hon. Friends the Members for Basingstoke (Mrs. Miller) and for Kettering (Mr. Hollobone) for their contributions on Second Reading.
Notwithstanding the absence of contentious debate, this Bill's passage has provided a useful opportunity to place some of our concerns on the record. No one disputes the importance of placing equity release schemes and home reversion plans under the regulator's auspices, but we do hope that the FSA will keep its costs and those passed on to consumers to an absolute minimum.
As you may have gathered, Madam Deputy Speaker, amid the serious and worthwhile debate there have been some opportunities for levity. For example, the Economic Secretary is now well aware of my rather obsessive knowledge of the pop music charts. I have to confess that I needed to look in a reference book to discover what was number one in the UK charts on the very day that he was born, in the first week of March 1967. I have to report that in the context of this Bill, the song in question"Release Me"could scarcely have a more appropriate title. In truth, I suspect that Engelbert Humperdinck may have had other things on his mind than equity release and home reversion plans, but his words were strangely prophetic as he sang, "Please release me, let me go."
Dr. Vincent Cable (Twickenham) (LD): The hon. Member for Cities of London and Westminster (Mr. Field) has said essentially what I wanted to say. This Bill has been well managed in an harmonious spirit and on the basis of great consensus, both on Second Reading and in Committee, where my hon. Friend the Member for Richmond Park (Susan Kramer) represented my colleagues and me.
I thank the Economic Secretary for referring at some length to regulatory costs, which were my main concern. He made the entirely valid point that what is relevant here is not so much the Government's activities as those of the Financial Services Authority. I hope that the FSA has heard our concerns, and that it will take them properly into account in drafting the regulations that will flow from this legislation. The Economic Secretary also made the valid point that the danger with consensual legislation is that things can slip through the
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cracks. I want to mention a couple of cases where that might have happened, one of which could be quite serious and relates to the ijara proposals. It is clearly too late to introduce amendments, but it is worth flagging up these issues so that the Government can reflect on them before the Bill proceeds to the other place.
There were three basic motives behind the Government's decision to introduce legislation on home equity release schemes: consumer protection; raising confidence in products, so that the market can expand; and creating a level playing field to prevent what the experts call regulatory arbitragein other words, preventing capital from flowing from regulated products into unregulated ones, because the costs associated with the latter are lower. On Second Reading, I asked whether this legislation should cover areas that appear to have been excluded from such regulation and from mortgage regulation, such as buy-to-let properties. Having subsequently discussed this issue with bodies such as the Council of Mortgage Lenders, I have been persuaded that doing so would not be appropriate and that the Government were right to exclude them.
However, those bodies also referred to a gap in mortgage regulation that might well lead to regulatory arbitrage. This problem relates to property investment clubs, which are rather different from buy-to-let schemes, in that they do not involve conventional professional landlord management relationships. We are talking about people who are looking to make speculative gains out of housing equity, and in many cases they are driven by the same motives as those that underpin the transactions with which this legislation deals. There is undoubtedly a great deal of abuse of consumers. Some of us will be familiar with the glossy leaflets distributed in our constituencies, advising people to ring a strange telephone numberno address is givenand to turn up to a meeting, where they will then be briefed on how to make themselves very rich by entering into particular property transactions. A good deal of money is undoubtedly being teased out of people in the form of, for example, hidden charges.
I understand that the Department of Trade and Industry has used existing regulation to crack down on a couple of such schemes. I ask the Minister to consider whether it might be sensible to cover them with a relatively modest enlargement of the scope of the Bill when it goes to the other place.
My other point is more serious and relates to the provisions governing ijara finance. We all welcome the idea of creating a form of finance that our Muslim constituents can use comfortably because it meets their religious as well as market requirements. It is an eminently sensible idea and we all rush forward to endorse it. People in the property business and, more particularly, in the Law Society have pointed out, however, that we may be unwittingly creating problems for many of those families by encouraging them to take ijara mortgages without adequate legal protection.
The nature of ijara transactions generally means that the property remains in the ownership of the lender. A person who would normally be a mortgagee is, in fact, a tenantan assured tenant, but the person who is acquiring the house through ijara finance is not the
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owner of the house. The equivalent of the mortgage lender is the owner, which presents two serious problems.
First, the occupant of the house is in a much weaker position in respect of disputes over arrears. Under the Housing Act 1988, the lender or owner of the property could evict after two months of arrears, whereas under conventional mortgage arrangements, the mortgagee has security of tenure. In those circumstances it is a matter for a court and a court order has to be obtained. The ijara borrower is therefore in a much weaker position than the conventional mortgage borrower.
Secondly, another difficulty applies either when someone wants to pay off their obligations or to foreclose. Under a conventional mortgage, the mortgagee is protected in that the mortgage lender is obliged by law to secure the best possible price and to make available, if he sells the property, a full account of the transactions. Under an ijara arrangement, however, the provider has no such obligation. According to lawyers, we could unwittingly place people who undertake ijara transactions for perfectly good reasons in a very weak legal position with respect to the providers of those products.
I ask the Minister to consider, as the Bill proceeds to the other place, whether a couple of legislative changes could be made. I am not in a positionthis is not the proper contextto draft amendments, but I hope that the Minister will at least reflect on the idea of making a couple of changes to protect the many people who may want to take advantage of the provisions. One change could provide that any contract for funding under an ijara scheme should allow the party receiving those funds to repay them at any time during the term of the arrangement. The other could ensure that the party receiving the funds had the same protection as that afforded to a mortgagor on realisation of security by a mortgage. These are technical and legal points, which I ask the Minister to reflect on. They are mentioned in the spirit of attempting, at this late stage, further to improve a Bill that we strongly support in principle.
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