Regulation of Financial Services (Land Transactions) Bill

I begin by echoing the comments made by my hon. Friend the Member for Kettering (Mr. Hollobone) about how long it has taken to get this Bill before the House. The Opposition, in the person of my hon. Friend the Member for Eddisbury (Mr. O’Brien), have been calling for the measure since January 2003. I also echo what my hon. Friend the Member for Basingstoke (Mrs. Miller) said. A number of my constituents are thinking about taking out home reversion plans and lifetime mortgages because they are having difficulty making ends meet. In part, that is due to the difficulties that they are encountering with pension schemes and the closure of final-salary pension schemes resulting from the tax of £5 billion a year placed on them by the Chancellor. In fact, the annual burden on pension schemes is larger than the entire equity release market. The equity release market does more than supplement pensions, as has been noted. In the future, it will be used to pass wealth down the generations and enable the younger members of families to get a foot on a housing ladder that is becoming increasingly expensive and out of reach, especially in London, the south-east and the south-west. I turn now to the Bill. I support moves to increase confidence, especially in the home reversion equity market. Many of the consumers who find such products attractive are elderly, and they deserve the protection of sensible and robust regulation. They also need access to the financial ombudsman service and the financial services compensation scheme to which the Minister drew attention in his opening remarks. In my Forest of Dean constituency, as is the case in the constituency of my hon. Friend the Member for Kettering, the proportion of elderly people in the population is higher than average. That is likely to increase quickly in the future, so these products will be increasingly relevant to their needs. In regulation, it is a good principle to ensure a level playing field. Most equity release products are mortgage based. Those products were brought within the ambit of the FSA last autumn, so it seems sensible that the same thing should happen with home reversion plans. That would ensure a level playing field on both sides of the market, but I support the call made by my hon. Friend the Member for Cities of London and Westminster (Mr. Field) for the Government to review the impact of the FSA’s regulation of the mortgage market. We need to see how that has worked, and whether the costs incurred are appropriate for the level of protection for consumers. In that way, we can make sure that a proper balance is maintained. I want to pick up on a point made by the hon. Member for Twickenham (Dr. Cable), who asked about a requirement for independent legal advice. I think that it would be helpful to require those giving financial advice to discuss with clients whether independent legal advice is necessary. However, I am somewhat cautious about making such legal advice compulsory, as some consumers will be well able to understand these matters without it. Insisting on legal advice in all circumstances would add to transaction costs, but it would be helpful if the person giving financial advice were required to discuss the need for legal advice, and to explain some of the pitfalls involved. What is the cost of regulation, and does it stifle flexibility and innovation? Several hon. Members have drawn attention to the cost of the proposals—a one-off cost of £11 million, and an ongoing cost of £5.4 million. In 2004, the total size of the market for home reversion plans was only £45 million. That represented a fall from the year before, perhaps due to the confusion in the market, but the cost figure that has been quoted still seems rather extreme. The fall may be due to the historically poor reputation of home reversion plans, to which my hon. Friend the Member for Basingstoke referred. However, an increase in regulation may serve to increase confidence and cause the market to grow as more consumers choose to take out such schemes. Average market growth would then rise, and the burden of regulation as a percentage of market size would fall. That is to be hoped for and, if it happens, welcomed. As my hon. Friend the Member for Basingstoke also noted, we must make sure that regulation does not stifle innovation and flexibility. Several hon. Members have noted that the market is likely to grow. We in this country are lucky to have a flexible and innovative financial services industry, so we must ensure that financial service providers are able to deliver new products for the benefit of customers. I hope that the proposed regulation will aid that. My final point also highlights the need for flexibility. The House of Commons Library has produced an excellent paper on this subject, and the example given in the appendix illustrates the changes in expectations in the financial services industry that have taken place over the past few years. The example refers to an episode of the comedy ““The Good Life””, made in 1977. For a person of my age, it seems strange that a pension of £2,000 a year was considered absurdly high, and the fact that a house in Surbiton could be bought for only £25,000 is just a distant memory. The serious point is that decisions involving financial services can extend 20, 30 or 40 years into the future. The world is uncertain and the products are complicated, and that is why good advice is essential.