45/04

10 May 2004

Home reversion plans to be regulated

HM Treasury today announced that home reversion plans will be regulated by the Financial Services Authority (FSA). The decision is the result of a full public consultation.

Announcing the decision Ruth Kelly, Financial Secretary, said:

“Buying a home reversion policy is a huge financial decision involving the most important, and sometimes only significant, asset of elderly people. It can have significant implications for tax, benefits, inheritance and long-term financial planning. Regulation will help people to make informed choices, offer valuable consumer protection and ensure that there is a level playing field in the equity release market.

“Legislation to regulate home reversion plans will be brought forward as soon as parliamentary time allows.”

HM Treasury will shortly consult on the definition of home reversion plans for the forthcoming legislation. When the scope of regulation has been defined the FSA will consult on the details of the regulatory regime.

Notes for editors

1. The consultation document, ´Regulating home reversion plans´ was published 11th November 2003. HM Treasury received 53 responses, 46 of which supported the introduction of regulation. A summary of the response can be found on the Treasury website.

2. Under home reversion plans a homeowner agrees to sell all or part of their home in return for a lump sum payment and the right to remain in the house rent free until they die or move home. At such a time the home reversion provider is free to sell the property.

3. Under mortgage backed equity release schemes a homeowner takes out a loan secured against a property. The loan is used to provide a regular income or provide a lump sum payment. The amount of the loan is normally based on the age of the owner, life expectancy and the value of the property. Ownership remains with the homeowner. The loan is repaid when the property is sold either upon death of the owner or if the borrower moves house. Mortgage backed equity release schemes will be covered by the mortgage regulations to be introduced in October 2004.

4. Media enquirers should call Simon Moyse, HM Treasury press office, tel. 020 7270 4420.