Julian Sampson, partner at Wright & Wright LLP, reflects on how quickly regulation of sale and rentback has come about, and its implications for equity release.
Bringing regulation to the sale and rentback industry has been a bit like fitting the proverbial square peg into the round hole. It just doesn’t go in without an awful lot of pushing.
Eventually though, with enough force and lobbying that peg squeezes in and, with no room for flexibility, it sits there uncomfortably wondering what it has done wrong.
Not that sale and rentback (SRB) hasn’t had its share of scandal and not that it couldn’t do with a spot of regulation to focus the mind.
In a commercial sense, SRB can genuinely benefit from the new regime it becomes a viable option for regulated advisers to recommend, it encourages transparency and therefore competition, it facilitates large investment and it fills a large gaping hole left by the depletion of mortgage products for the consumer.
The consumer must also therefore benefit. SRB completes the advice circle and when combined with sound debt and benefits advice, can leave the consumer in a far better position post completion than before the enquiry was made.
Take the RPS proposition, put together by Peter Beaumont, Trevor Pothecary and David Newman. As you might expect they embraced the prospect of regulation before the Treasury even considered it and this is reflected in what they offer to the consumer in terms of transparency of process, fairness of outcome and provision of holistic advice. Interestingly, in my experience, many of the people now being re-converted to tenants were ex-Right to Buy tenants who were wrongly persuaded to take advantage of the deep equity owning a council home would bring and were never advised of the downside – mortgage commitments and overstretched debt. The regulatory regime requires SRBers to encompass debt counselling.
The regulated SRB world will not be one of dubious doorstep providers, hassling tenants for increased rents. Whilst some of the applicant providers may struggle with implementing compliant systems, much of this is down to them coming from a wholly unregulated environment and the tight window for regulation imposed by the Government.
In January I ran some workshops for SRB providers on the OFT report and what the legislation might look like. The FSA at that point hadn’t issued their consultation paper. Those who came from a regulated background firmly felt that regulation would be 15 to18 months away – and there was no reason to suspect they were wrong. And yet less than six months on SRB is now regulated. There is little wonder people were ill prepared. Yet those that apply (and I estimate 10 or so will be providers) will have proven themselves to the FSA (and possibly the public at large) that they can be dedicated and professional in what they do.
Let us not forget that many years ago equity release was frowned upon, and hasn’t it developed from strength to strength? There are many similarities here with the way that SRB will build. Indeed, the crossover is obvious and, in some ways, SRB could be a threat to the future equity release market. Not only can SRB deal with the aged, but also in selling their properties the SRB consumer is one less equity release customer. I have certainly advised elderly clients who would have benefited from the vastly superior equity generated from a SRB sale than the restricted equity cash options from equity release.
Perhaps this is a reason for (very strong) rumours that equity release providers are considering entry into the SRB market when full regulation falls in June 2010?