Clause 1 - Financial Services and Markets Act 2000: regulated activities
Regulation of Financial Services (Land Transactions) Bill
10:30 am
Ivan Lewis (Economic Secretary, HM Treasury; Bury South, Labour)
I congratulate the hon. Gentleman on the usual temperate way in which he presented the case for the amendment. As for The Tremeloes, my grandfather was a great fan. I always thought that there was something about the hon. Gentleman that I liked, and to hear that he is a Bury supporter is really good news. However, I am a little disappointed that he defines the north-west almost as a place where we still wear clogs and cloth caps. He obviously needs to make more regular visits to Gigg Lane.
This is a reasonable debate to stimulate and the hon. Gentleman raised a number of substantive issues. The Bill is short and I should like to put it into context before dealing directly with the amendment. Buying a home reversion plan is a huge financial decision, often involving people's most important—and sometimes only—significant financial asset. Such schemes are generally sold to the over–60s and provide a valuable means for cash-poor pensioners to realise some of the value locked up in their homes and improve their standard of living.
Such products are not simple to understand, however. Realising a cash lump sum or income via equity release can have complex implications for a pensioner's tax and benefit situation. Hence there is a need—the Opposition have agreed—for regulation to ensure that potential purchasers of equity release schemes receive an appropriate level of advice. As the hon. Gentleman said, the Bill is designed to facilitate Financial Services Authority regulation of such plans, which will help people to make informed choices, offer valuable consumer protection and ensure a level playing field in the equity release market, most of which already falls within the scope of FSA mortgage regulation.
As the hon. Gentleman has said, another important element of the Bill is that it will ensure that Muslim consumers or others who are uncomfortable about taking out interest-bearing loans can access the growing market in sharia-compliant home finance products, while benefiting from the protections afforded by FSA regulations. In response to consultation, the Bill has also been drafted to allow for the possibility of future regulation of flexible tenure products. Those are products that allow people to buy and sell equity shares in their house, should that at some stage be thought necessary and desirable.
The Bill has been introduced to meet the needs of consumers. Interestingly, it has also been introduced at the behest of industry, which welcomes the news that the Government are to legislate to level the regulatory playing field in the area. Jon King, who is the chairman of Safe Home Income Plans—the membership of which covers much of the home reversion market—has gone on record as saying of the Bill:
''I'm delighted this has come so soon. People should now feel safe that these schemes are worth considering. Regulation means that people will be compensated if sold the wrong plan.''
He was quoted as saying that in the Financial Times on 17 May 2005. Therefore, there is agreement that the Bill is both useful and important and is worthy of support from Members of all parties.
In response to the hon. Gentleman's amendment, which, as he accepts, is a probing amendment, I will try to explain by offering him some assurances why we want him to feel able to withdraw it. The Government do not believe that it is appropriate to set a de minimis threshold for the regulation of home reversion plans and ijara home finance products. The reason for that is, primarily, that there is a risk that less scrupulous providers might exploit that threshold by offering multiple loans to the same borrower, each at just under the de minimis threshold. The risk to the consumer of that cumulative borrowing would be no different from the risk attached to a single plan for more than £50,000. It would also, of course, create a potential distortion in the market.
It is also important to say something that I have mentioned to the hon. Gentleman privately. During the comprehensive consultation exercise, one of the issues considered was whether a de minimis threshold was appropriate. In fact, those who responded to the consultation were unanimous in saying that there should not be such a threshold on the value of the reversions carried out. So, the unanimous view of those who responded to the consultation was that, although such a provision was worthy of consideration, on balance the outcome was not desirable.
I hope that I have gone some way to reassuring the hon. Gentleman that we seriously considered the proposal that he and his hon. Friends made. I also hope that I have explained why, at this stage, the amendment would be neither a desirable nor an appropriate outcome. On that basis, I ask the hon. Gentleman to withdraw the amendment.