Money News
New home finance regulations aimed at adding new protections to the housing market, have now been introduced by City watchdog, the FSA (Financial Services Authority).
Older consumers wanting to release equity in their homes through a Home Reversion Plan (HR) will enjoy these protections as will consumers wanting to buy their homes in a way that complies with Islamic law through a Home Purchase Plan (HPP).
Dan Waters, FSA Director of Retail Policy, said: "Regulation of these products represents an important step in the regulation of housing finance. It allows the FSA to deliver a level playing field by extending consumer protection over both sectors of the equity release market.
"In the case of HPPs it also builds on the work we have already done to improve consumer access to Islamic financial services. We are also working to promote wider public understanding of both these products as part of our consumer education objective."
HRs are a type of equity release product, involving a sale and lease arrangement. They are generally aimed at older homeowners and are designed to enable them to benefit from the value of their homes without having to move out of them.
With an HR, the homeowner releases equity tied up in their property by selling all or part of it to an HR provider. The provider normally allows the homeowner to remain in the property under a lease for the rest of their life.
The FSA already regulates the other main type of equity release product, Lifetime Mortgages.
HPPs, on the other hand, are structured as one method of financing the purchase of a home that is acceptable under Islamic law. The other is the Murabaha method, already regulated under the FSA's mortgage regime.
Popularly known as 'Islamic mortgages', HPPs also involve a sale and lease arrangement. They serve the same purpose as standard mortgages i.e. providing consumers with finance to buy a home, but are structured in a way that a number of Islamic scholars consider acceptable.
There are two types of home purchase plan currently available the Ijara and the Diminishing Musharaka. The other way of buying a home acceptable under Islamic law is the Murabaha, which has been regulated since October 2004 under the mortgage regime.
The latest package of measures requires firms offering HRs and HPPs to be fit and proper and appropriately resourced with staff competent to undertake this business.
Also, consumers should get clear, concise and consistent information about a firm's services and products on offer (including appropriate risk warnings) so they can make informed choices. And they should get good quality advice and be sold suitable products which take account of their circumstances.
Finally, if things go wrong, consumers should be able to obtain redress, if appropriate.
05 April 2007 © Moneyextra.com
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