The growth in the popularity of equity release schemes has resulted in some borrowers being sold packages that are inappropriate to their needs, according to broker Mortgage Talk Direct.
Andy Frankish, director of Mortgage Talk Direct, said: ‘Although I believe equity release schemes are a useful mortgage product, some borrowers see them as a way of obtaining a loan greater than they would norm-ally qualify for. There are situations in which buyers will be tempted to over-commit themselves.’
He added that brokers should undertake affordability calculations in order to pre-qualify applicants looking at equity release: ‘Brokers should explain the significance of the client’s monthly commitment and produce a statement clarifying the implications of failing to meet obligations. This should be signed by the client as acknowledgement.’
Equity release provider Key Retirement Solutions has also warned of problems concerning this sector. It said there is a potential for mis-selling with the omission of reversion policies from Financial Services Authority (FSA) regulation in 2004. The FSA regulation states lifetime or ‘roll-up’ arrangements, will be regulated from 2004 and reversions schemes will be left out.
While a roll-up scheme involves the remortgaging of equity in a property, a reversion policy sells part of the property to an equity release company. The homeowner receives a lump sum and any equity gain is divided on the sale of the property.
Colin Taylor, managing director at Key Retirement Solutions, said: ‘The industry established Safe Home Income Plans (SHIP) which is dedicated to the protection and promotion of safe schemes. But there are home reversion plans and advisers that remain outside the remit of SHIP and the FSA. We are concerned the mixture of unregulated products and unregulated advice could lead to future mis-selling.’
Jon King, chairman of SHIP, agreed: ‘Our representations to the FSA made it clear we wanted reversions regulated, and we are disappointed they are not. People asked before the regulation was released what the future of SHIP was. This omission makes SHIP more important.’