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SHIP safeguards to remain

by: Stephen Quigley
  • 07/08/2009
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Industry figures have warned that removing Safe Home Income Plans (SHIP) safeguards from equity release products would be a major setback for the market, despite Ernst & Young’s warning that the measures were preventing funders from entering the sector.

The research – which was presented last week at the launch of SHIP paper “Facing the Future: Redefining equity release to meet today’s social and economic challenges” – said the SHIP guarantee of no negative equity (NNEG) was revealed to be the most problematic factor in deciding to fund equity release due to the risk to the funder.

James Hillman, partner at Ernst & Young, warned that the no negative equity guarantee was a severe constraint for firms looking to enter the market.

He explained: “The no negative equity guarantee exposes funders to house price inflation risk and there is limited opportunity to mitigate the risk through product design. If funders are unwilling to enter the market, this will affect the ability of providers to meet consumer needs and demands.”

Andrea Rozario, director general of SHIP, said funders of equity release needed to understand that the SHIP safeguards were put in place to protect consumers.

She commented: “Although the safeguards are seen as obstacle to funders from entering the market, they protect customers and a lot of providers feel the safeguards are imperative and non-negotiable. More market information is needed for funders to be able to appreciate the risk so they can make an informed decision over entering the sector.”

Stuart Wilson, managing director of Equity Advice, agreed that changing the safeguards would have a negative impact.

He explained: “The guidelines protect consumers and giving up the safeguards would be a serious setback as the market has spent a long time reaching a point of credibility. Without the guidelines, people may take advantage of equity release.”

 

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