New protections for consumers in the housing market

Following public consultation earlier this year, the Government has today published the secondary legislation to bring home reversions and Ijara home purchase plans into regulation.

The changes will ensure that consumers of equity release products and Shari’a law compliant home purchase plans will benefit from the protections afforded by Financial Services Authority (FSA) regulation, and will take effect from 6 April 2007.

The Economic Secretary, Ed Balls MP, said today

“I’m delighted to announce changes which will offer valuable new protection for consumers wanting to release equity from their home and for people taking out Ijara home finance plans.”

Notes for editors

1. The Treasury consultation on the secondary legislation ran from March to June 2006.
2. The consultation response, Regulatory Impact Assessment, and the relevant Orders and explanatory memoranda are available on the HM Treasury website.
3. Following the announcement today, the legislation will be debated in Parliament in October and is subject to Parliamentary approval.
4. The Financial Services Authority will publish the results of its separate consultation on the detailed rules that will apply to these products (including the rules in their final form) as soon as Parliament has approved the Order, and will begin to accept authorisation applications from 6 November 2006. (The Treasury regulations specifically provide that the FSA can only begin to accept applications from this date.)
5. Equity release schemes allow homeowners to release the value of their property in return for all or a share of their interest in the home. There are two types of equity release schemes:

Lifetime mortgages – the consumer takes out a loan secured on their property, which is repaid when the property is sold. These are already regulated by the FSA.
Home Reversion Plans – the consumer sells all or part of their home but retains the right to live there. The legislation announced today will bring these within FSA regulation.

6. Interest-based home finance products do not comply with Islamic (Shari’a) Law, but Islamic law can accommodate contracts to facilitate house purchase. Again, there are two main types:

Murabaha products – where an institution buys a home and sells it to the consumer, accepting payment of the price over an agreed period. These are already regulated by the FSA.
Ijara and Diminishing Musharaka products (defined in the secondary legislation as home purchase plans) –the institution buys a property on behalf of the consumer and rents the un-owned share of the property to the consumer until the end of the plan. These will be brought within FSA regulation.

7. Media enquiries should be addressed to the Treasury Press Office on 020 7270 5238.
8. Non-media enquiries should be addressed to the Treasury Correspondence and Enquiry Unit on 020 7270 4558, or by e-mail to public.enquiries@hm-treasury.gov.uk
9. This press release and other Treasury publications and information are available on the Treasury website at www.hm-treasury.gov.uk. If you would like Treasury press releases to be sent to you automatically by e-mail you can subscribe to this service from the press release site on the website.