Regulation of Financial Services (Land Transactions) Bill

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. More and more older people, Mr. Deputy Speaker, 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 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.