The Financial Conduct Authority – About Sale and Rent Back (SRB)

Since 30 June 2010 we have regulated firms that offer sale and rent back (SRB) to consumers. This replaced our interim regime, which ran from 1 July 2009. SRB involves people selling their home, usually at a discount, in exchange for the right to remain in the property for a minimum of five years.

Summary of FCA requirements

Our rules are designed to help protect consumers. We want to prevent high-pressure and inappropriate sales, and help consumers understand SRB products so they only enter into SRB where it is an appropriate and sustainable solution for them.

The full SRB regime helps to protect consumers by:

• ensuring consumers have better security of tenure through a fixed-term tenancy agreement of at least five years;
• requiring that firms always check the consumer can afford the deal and it is right for them;
• requiring firms to make sure the consumer has checked their ongoing entitlement to benefits;
• introducing a cooling-off period of 14 days to give consumers more time to make decisions;
• banning cold calling and prohibiting firms from dropping promotional leaflets through letter boxes;
• prohibiting the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature;
• requiring firms to provide consumers with a consumer factsheet and other additional information to help them make informed decisions; and
• ensuring that an independent valuation is carried out where the valuer owes a duty of care to the consumer in all sales.

Firms have to meet our rules on the amount of capital they hold. They must also have professional indemnity insurance and effective systems and controls in place.

Our approved persons regime applies to sale and rent back firms, to make sure that the individuals involved in the firms are ‘fit and proper’.

Reporting to the FSA

We introduced a full reporting regime on 30 June 2011. Our policy and rules on how SRB firms must report information to us is set out in Policy Statement 10/8 – Regulatory reporting for sale and rent back.

Here is a summary of our requirements:

• SRB advisers and arrangers will need to send in a half-yearly report using the retail mediation activities return (RMAR).
• SRB providers and administrators will need to send in sections A to H of the mortgage lending and administration return (MLAR)  quarterly. Sections J and K of the MLAR will need to be submitted annually.
• Firms with a combination of these permissions will need to send in both the RMAR and MLAR.

• All SRB providers will also need to collect product sales data quarterly.
• All SRB firms will need to send in a half-yearly complaints return.

Firms will receive clear instructions on how to submit these returns to us.

Unauthorised firms

All firms that carry out SRB business need to be authorised by us, unless they are exempt or using a legitimate exclusion. If you do business without being appropriately authorised you are committing a criminal offence. We are continually monitoring the market for unauthorised business and will take action against firms or individuals found to be carrying out SRB activities without our permission. If you become aware of, or suspect a firm or individual of carrying out, unauthorised business, please report it to us immediately.

The Mortgage Market Review

Sale and rent back is a type of home finance and was included under the Mortgage Market Review. SRB will therefore benefit from the reforms we are introducing in April 2014. For more information about the Mortgage Market Review and its impact on SRB click here.

ENDS

Published: 29/03/2013

Source: Financial Conduct Authority

I’ll address the elephant in the room before I begin – the equity release market has often endured a mixed response from the mainstream media in recent years and, as a result, public perception is not always as positive as those who work in the sector would like it to be.

Despite advisers and providers stating time and again that equity release may not be the most suitable option for all older homeowners, home reversion plans and lifetime mortgages have often been pilloried by commentators concentrating on a handful of negative experiences rather than the thousands of positive ones; not to mention repeating inaccuracies about the plans and hence perpetuating the myths.

The industry has done much to banish these misconceptions and the metamorphosis of our trade body from Safe Home Income Plans (SHIP) into the Equity Release Council last year has continued this good work, but more remains to be done.

First, let’s debunk a few myths. There seems to be a common misunderstanding that taking out an equity release plan somehow jeopardises the homeowner’s ongoing occupation of the residence. This is incorrect, as all providers adhere to a code of conduct which allows customers to stay put for life.

Another major misconception is that fluctuations in house prices could somehow leave individuals owing more than the value of their home, but the truth is that providers subscribe to a ‘no negative equity guarantee’ that ensures this can never be the case and that no debt will ever be left to the estate. The issue of inheritance is obviously one that needs to be discussed with family members, but we are not only seeing a change in attitudes to how assets are passed on to younger generations, but we are also seeing a growing number of older homeowners using equity release to make financial gifts to family members while they are still alive rather than bequeathing property once they have passed away.

This growing trend has seen what was once referred to as ‘the Bank of Mum and Dad’ – i.e. parents lending or gifting money to their children, often for a deposit on a house – extend to incorporate the ‘Bank of Grandma and Granddad’ too. Whereas once people might have associated equity release as a method to fund non-essential luxuries in retirement such as home improvements or overseas trips, it is now increasingly being utilised for practical reasons such as the aforementioned assistance to family members, to service mortgages and other debts carried into retirement, to maintain one’s standard of living and to help make up the shortfall in the state pension and long-term care costs. Equity release may not always be the answer, but often older homeowners have exhausted all other options and sometimes seem to forget they can access the capital they have built up in their home over the years.

Before advisers recommend home reversion plans or lifetime mortgages, they take a whole host of factors into consideration and will already have suggested to the clients they take time to consider all their options and discuss the implications with their family. After building up a profile of the client and their needs, a range of alternatives to equity release will be discussed such as selling up and downsizing, utilising existing savings, asking family members for financial assistance, taking in a lodger, selling a car or valuables, using state benefits or remortgaging to a cheaper deal.

Conscientious advisers will assess the suitability of all these possibilities before arriving at equity release, although there may well be practical or logistical obstacles to some of them. For example, downsizing may well sound simple, but there may not be a property that fits the criteria in the required area. Older homeowners may well be reluctant to up sticks and move away from family and friends and the lodger idea may not be the right answer for those who value their privacy or are fearful of potential security implications.

If a decision is made to proceed with an equity release plan, the adviser will then explain whether a lifetime mortgage or a home reversion plan is most suitable dependent on the individual’s circumstances and other factors, like how much they want to release and whether they will require further drawdowns. Another tenet of the aforementioned Equity Release Council code of conduct is a fair, simple and complete presentation of the plan so customers are aware of all the benefits and limitations of the product together with any obligations on their part. This is all part of making equity release products as transparent as possible while acknowledging that older homeowners are sometimes regarded as more vulnerable than other financial services customers.

Equity release is not a panacea that will be suitable in every circumstance, but it does the products a disservice to not acknowledge the positive effect they can have in many situations. With older homeowners only likely to find the economic climate tougher in coming years as the cost of living soars and swingeing state cuts hit pensions and long-term care provision, it would be remiss for them to not at least consider what equity release could do for them.

Source: This is a guest post by Chris Prior, business development manager at Bridgewater Equity Release from an article in: http://www.moneyobserver.com

Older homeowners who are asset-rich but cash poor often turn to equity release to raise tax-free cash against the value of their properties to help fund home improvements or to go on holiday, or simply to treat family or friends.

However, new figures from specialist adviser Key Retirement Solutions show that almost one in five are now using equity release to repay outstanding mortgages.

“There are a number of reasons for this,” says Dean Mirfin from Key Retirement Solutions.  “The first is as a result of investment shortfall, typically endowment, where the maturity values are consistently falling short of their targets, leaving many with outstanding balances they were not expecting to have to continue to pay in retirement.”

The second reason relates to older homeowners with interest-only loans who now have to find the cash to repay lump sums, as the capital has not been paid.

As lenders have tightened up their lending criteria on interest-only borrowing and placed limits on the maximum age at which people can borrow money, older people can struggle to find a new mortgage deal.

The third reason relates to those who planned to have a mortgage in retirement, but who are now finding it difficult to afford one.  “This may be due to lower-than-expected levels of retirement income, as well as having to use a high percentage of their payments,” says Mirfin.  “This has placed many into mortgage poverty.”

Those struggling may feel they have limited options, but equity release could be the answer.  “Equity release can be used to repay mortgage borrowing while enabling you to remain in your home,” says Mirfin.   “This can take away the worry.”

Equity release can also be a useful way of freeing yourself of debts such as loans and credit cards that have followed you into retirement.

“The squeeze on pensioner income is very real and likely only to tighten in the future,” warns Stephen Lowe from equity release provider Just Retirement.  “But many of those with inadequate pensions and few other sources of income do own their own home and have significant wealth locked up in bricks and mortar.  Tapping into that wealth could bring considerable benefits.”

In addition, equity release can also offer a solution to those looking to help out struggling family members.

“Parents want to help their children, but this can create a real dilemma for those who don’t have the resources,” says Nigel Waterson from Equity Release Council. “Yet, in the majority of cases, there is substantial wealth tied up in the family home.  Through equity release, this can be unlocked and used to tackle financial pressures across the generations.”

WHAT IS EQUITY RELEASE?
There are different types of equity release scheme, but most work by securing a loan on the value of your home.  This means you can then unlock the capital, while continuing to live there.

Typically you do not have to pay any of the capital or interest during your lifetime as the interest and capital “roll up”.  Repayment is due only when the property is sold, or when the owner dies, or moves into long-term care.  Any money left over once the debt has been cleared goes to the next of kin in the usual way.

If you do not need a large lump sum, you may want to consider “drawdown.”  This is where a cash reserve is set aside for you, allowing you to draw money in stages as and when you need it.

As interest is paid only on the money you have taken, this can reduce the overall cost.  According to Key, almost three quarters of plans are now drawdown.

Its figures also show retired homeowners released more than £961 million from their homes in 2012 – 15 per cent higher than in 2011 – with the average customer releasing more than £52,000.  This kind of sum can give pensioner finances a significant boost at a time when savings rates are at a rock bottom, and annuity rates are falling.

WHAT PROTECTION IS IN PLACE?
The rules on equity release have been tightened and it is now regulated by city watchdog, the Financial Services Authority (FSA), meaning you have lots of protection; the industry has also cleaned up its act.

Nonetheless, as an additional precaution, always look for a member of the Equity Release Council (ERC), as all members agree to abide by the code of conduct, including a no negative equity guarantee.  This means you cannot lose your home, and will never owe more than the value through equity release.

“The growth of the equity release market over the last 12 months is a really positive sign that people are making proactive moves to get the best out of their housing equity,” says Andrew Rozario of the ERC.  “At the same time, the ERC has re-launched and extended the reach of its membership to include advisers, solicitors, surveyors and charities, with all members undertaking to abide by our strict set of principles.”

TALK TO YOUR FAMILY AND GET ADVICE
Given that equity release can significantly reduce the worth of the estate you are leaving to your loved ones, it is vital that family members are involved in the decision making process.

“You need to ask a series of questions,” says Vanessa Owen, from equity release provider LV=.  “Questions include: are you releasing equity at the right time and for the right reasons? Will your entitlement to benefits be affected?  And are you eligible for any financial assistance from your local authority?”

It is also vital that your take independent financial advice.  By speaking to a qualified adviser, you can ensure you have considered all your options and chosen the one which is best for your circumstances.

“Equity release mortgages can be a complex, expensive way to borrow, so we would advise people to seek independent financial advice,” says a spokesman for Which? “Providers have gone some way to improving these schemes, but we want them to go further with transparent fees and charges.”

Encouragingly, new findings from the ERC show a third of adviser members emphasized the fact that equity release advice is highly regulated and that products are much safer than ever before.

“Equity release offers many people a common sense and practical alternative to selling their home or falling back on State support,” says Waterson from the ERC.  “The safeguards supported by the code and the work of our Standards Board are designed to protect consumers’ best interests.  This means over-55s can engage advisers with confidence to discuss how equity release can benefit their retirement.”

Source

Daily Express Newspaper  http://www.express.co.uk/

Photography: Neil Moralee

This is a note to explain the changes being made on 1^st April 2013 because it affects equity release providers and financial advice organisations as they come under the new Financial Conduct Authority (FCA).

The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000:

• maintaining market confidence;
• securing the appropriate degree of protection for consumers;
• fighting financial crime;
• contributing to the protection and enhancement of the stability of the UK financial system.

On 1st April 2013, the FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority as required by the Financial Services Act 2012.

The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this, the FCA has three operational objectives:

• to secure and appropriate degree of protection for consumers;
• to protect and enhance the integrity of the UK financial system;
• to promote effective competition in the interests of consumers.

ENDS

Source: FSA – http://www.fsa.gov.uk/library/communication/pr/2013/032.shtml

As more and more people over the age of 55 look into the future and begin to plan their retirement, the focus is on how they will finance their later years.

This is why the value of their home becomes a very valuable asset, along with pensions, investments and savings.

But where do you go for expert advice?

1. Direct to an equity release provider?

It is possible to go direct to an equity release product provider for an equity release scheme. The majority of equity release providers are members of the Equity Release Council (ERC).

But bear in mind, that when you ask about their equity release plans, you will receive general information about their products and plans and not specific advice focused on your specific needs.

However, most providers will send you the information, but will only take instructions from you through a regulated intermediary.

2. Seek independent financial advice?

When considering carrying out equity release from your property, the most positive thing to do is to seek independent financial advice from an adviser who is authorised by the Financial Services Authority (FSA), this means that they have the appropriate qualifications set by the FSA and will meet certain standards which the FSA monitors.

These advisers, known as IFAs, are not ‘tied’ to any one provider of equity release products but are bound to search the whole-of-market on your behalf to find the best product that fits your particular circumstances.

Added security

By using an FSA-regulated IFA, you will also have the added security of having access to the Financial Ombudsman Service and the Financial Services Compensation Scheme if things should go wrong.

Legal advisers

There are specialist legal advisers available who are experts in equity release – contact them if your own solicitor is not up-to-speed.

Note: Financial advice has never been free but in the past it has not always been clear about how advisers were paid. This year, neither independent nor restricted advisers are incentivised to recommend any one product over another. This means that as they won’t be paid commission by a product provider, you will be charged an agreed fee for their advice in advance.

Sources:

Equity Release Council

Equity Release Solicitors’ Alliance

If you would like a free, expert chat about equity release just jot down your age(s) together with an estimate of the value of your home and email: Wier@equityadvice.co.uk

Photography: Neil Moralee

Pensioner poverty could be eased if Britain’s elderly release equity in their homes, revealed findings from research carried out by Oxford Economics. The research showed that of the1.7 million pensioners classified as being in poverty, 60% owned their own homes outright.

Stephen Lowe, group external affairs and customer insight director at Just Retirement, said: “The squeeze on pensioner income is very real and only likely to tighten in the coming decades as defined benefit schemes are replaced by less generous pensions and the state is forced to focus its limited resources on those who need it most.”

The report uses economic modelling to quantify the benefits that tapping into some of that wealth, estimated to stand at £750bn of un-mortgaged equity, might bring.

It uses the example of a notional drawdown plan aimed specifically at giving a longer-term income boost to pensioners by allowing them to extract £5,000 a year for 12 years.

The data showed between 3.8 million and 22.8 million pensioner households could be lifted out of poverty for a year between 2012 and 2040. Lowe said it is now a question of raising awareness of the options that equity release offers pensioners in supplementing their income.

He said: “The next step is to take the report out to mortgage brokers and independent financial advisers to build interest from professionals to engage with equity release more by showing them what it can do and how big the potential market is.”

But Lowe said that the government and the opposition need to be more vocal in their support for equity release as a viable solution to the problem. He said: “We are calling on Norman Lamb, minister for care, and Jeremy Hunt, the health minister, to urgently put equity release on the political agenda and support the industry by being more audible about the benefits of products using local authority channels and the Money Advice Service.”

He added: “Consumers are looking to the government for greater clarity and they are also seeking reassurance that equity release is a safe, well-regulated product that might legitimately be considered in the planning of retirement income.”

ENDS

Source: Mortgage Introducer

This is a golden time for equity release customers at the moment with the rates on many deals at an all time low.

And without doubt these products are appealing to more and more clients with all sorts of different aims in mind.

And it’s not just price alone that is attractive – the no-negative equity guarantee that equity release products carry, once explained properly to clients is a great example of this.

With people living for longer – the recent death of Reg Dean the oldest man in the UK at 110 was a classic example of this – the potential benefit from this type of guarantee is massive.

There is also the fact that the loans are fixed for life – and with the current market there’s nothing like locking in at the bottom of the cycle.

The final benefit for clients is the prospect for redemption penalties should they redeem in the future. With gilt yields still near all time lows the prospect of a penalty in future seems at best remote.

With more people approaching retirement any many with outstanding debts like mortgages, in particular interest-only mortgages, this is by far the best place to start.

Products now exist where brokers can now make a real difference in areas like outstanding mortgage debt.

Source: Mortgage Strategy Magazine