Clause 1 - Financial Services and Markets Act 2000: regulated activities
Regulation of Financial Services (Land Transactions) Bill
10:30 am
Mark Field (Shadow Minister, Treasury; Cities of London and Westminster, Conservative)
I beg to move amendment No. 2, in page 2, line 6, at end add—
'(4) The provisions of this paragraph apply only where the property (or the relevant part of it subject to a finance arrangement under this Act) is valued at no less than £50,000.'.
It is a pleasure to lead on behalf of the Opposition on this legislation, which, as I have mentioned, enjoys widespread support in the House.
The hon. Member for Richmond Park may or may not be a great fan of songs of the 1960s, but I am. The Tremeloes were great; they sang ''Silence is golden''. Notwithstanding the fact that silence is golden, perhaps she will sing other songs that involve a few words. I hope that there will be songs with a few lyrics during our proceedings.
On a serious point, I am acutely aware that this outbreak of apparent unanimity across the political divide makes scrutiny of the Bill, however brief, all the more important. It is a remarkably short Bill. Strictly speaking, it is two clauses long, but as the Minister will be aware, a princely 50 per cent. of that two-clause total deals with the administrative matter of its short title and commencement. There has therefore been relatively little scope for tabling amendments—or so I thought. In fairness, the two in my name and those of my hon. Friends were tabled as probing amendments.
Although I should quite properly avoid covering similar ground to that addressed on Second Reading 12 days ago, I wanted to pick up on some of the points raised in my speech and in those of other Members on that occasion. Equity release may not be an issue to thrill the heart. I suspect that there are somewhat sexier issues to debate in the House, such as the Pharmaceutical Labelling (Warning of Cognitive Function Impairment) Bill to be debated under the ten-minute rule this afternoon. Nevertheless, like its not so distant cousin, personal pension reform, this issue—I mean equity release, rather than cognitive function impairment, Mr.Caton—will be of direct relevance to the lives of thousands and, in the decades ahead, to the lives of tens of thousands, in every one of our constituencies.
We rush ahead with this legislation at our peril. We have at this juncture the opportunity to step back, having agreed the matter in principle, to ensure that the Bill that we are putting on the statute book will satisfy three main tests: robustness, flexibility and innovation. By the end of 2003, there were 69,000 lifetime mortgages—or equity release schemes—which stood at a value of £2.85 billion, and a further £1.2 billion-worth of equity release schemes were taken out last year. Their growing popularity hinges on a number of reasons, including the massive increase in the value of residential property. The average price of a home in the UK was just £4,600 as recently as 1969, compared with £150,000 and rising today. In addition, inadequate pensions and returns from savings and investments mean that bricks and mortar are not only regarded as the best savings investment, but provide an opportunity to derive an income, particularly in later life.
I turn to amendment No. 2. Now is a perfect moment for us to analyse whether it would be sensible to introduce a de minimis provision. In essence we have two main concerns with the Bill. The first is that the sheer cost to consumers will result in relatively little financial gain if the aggregate equity released is less than £50,000 from the sale or part-sale. I accept that we are plucking a figure from the sky, but it seems a sensible one to use.
Secondly, the overwhelming regulatory burden involved in releasing smaller sums might make this legislation unworkable as a practical proposition in relation to those small sums. In particular, many of the more reputable intermediaries in the mortgage and equity release field might be dissuaded from engaging in transactions releasing less than a given capital sum if the cost of regulation makes it uneconomic. If the effect of not having a de minimis provision such as the one proposed will be to diminish consumer choice, especially at that lower end of the market, and leave the market in the hands of less reputable intermediaries, it would surely be better to agree to a threshold and thereby enable a more cost-effective approach to smaller transactions.
We hope that increased consumer choice will drive up standards in that less lucrative corner of the market. That would also go some way to addressing a number of the concerns that were raised during consultation about Islamic mortgages. The Treasury recognised in its consultation paper that a murabaha arrangement fell within the definition of a regulated mortgage, but the proposal to bring ijara home finance arrangements under the definition was subject to more controversy. The vast majority of consultees believed that ijara products should be regulated in order to provide a level playing field in the market for that and other sharia-compliant home purchase products, which the FSA has already regulated. The de minimis provision is designed to enhance competition in that otherwise relatively less lucrative market.
I represent a central London seat, and it is important to bear in mind that house prices in London and the south-east are going through the roof. However, that is not the case in constituencies in the north-west of England and others perhaps not too far from the Minister's. There are still a considerable number of properties valued at less than £50,000. One must also remember that the legislation will apply not only to full sales, but to part sales, in terms of releasing equity. As a result, many ijara financing products might, for the want of a de minimis provision, fall outside the Bill, which would allow a broader range of intermediaries into the market who would not be forced to comply with an overly stringent and expensive set of regulations.
I hope that my remarks will induce a short debate. More importantly, even if the Government are disinclined to accept our amendment, I hope that there will at least be some thinking in the years ahead to ensure that that perhaps stickier part of the market will not be disadvantaged by the fact that far fewer intermediaries might be involved.