Equity Release Options for Vulnerable Homeowners

1
Equity Release Options for Vulnerable Homeowners

• Research Project
• Doug Wright -November 2007

2
Aims and Objectives

• Aim maximise number of homes occupied by
  vulnerable people that are made decent
• Objectives
• To stretch limited public sector capital
  resources by recycling more back into the loan
  fund
• To lever in private finance to supplement public
  resources
• To make use of the equity in peoples homes
• To be able to offer affordable products that
  vulnerable people will want to take up
• To investigate delivery options
• To ensure good quality advice

3
Products Examined

• Capital and interest repayment loan
• Interest only loan
• Equity share loan, e.g. property appreciation
  loan (PAL)
• Discounted PAL
• Interest rolled up loan

4
Regulation

• Financial Services Authority regulates all first
  charge mortgages
• Consumer Credit Act governs other lending
• Two levels of FSA approval information and
  advice
• LAs and RSLs exempt from regulation
• Concerns about miss-selling loans

5
Delivery Options

• RSL subsidiary model, e.g. ART Homes
• Intermediary agency model, e.g. Houseproud
• Community Development Finance Initiative model,
  e.g. Wessex Reinvestment Trust
• RSL model
• Equity Swap, e.g. London Rebuilding Society

6
Private Finance

• No commercial lender wishes to lend to vulnerable
  individuals
• Only option is for public funds to be ring fenced
  into a loan fund and for private finance to be
  levered in
• Max ratio public to private is 7030
• Only two agencies in partnership with private
  sector ART Homes, WRT
• Private lender require significant volumes of
  loans

7
Recommendations - 1

• Suite of loan products should be introduced
• External organisation should deliver loans and
  lever in private finance
• Organisation should be FSA regulated up to
  advice standard
• RSL subsidiary delivery model should be adopted
• Should engage with GLA to establish sub-regional
  or regional loans delivery agency

8
Recommendations - 2

• Boroughs to adopt a loans first, grants second
  policy and aim for common policies
• Aim for implementation of recommendations by
  March 2009
• Interim pilot scheme to trial PAL in one or more
  borough

9
Questions for Workshop

• Do we agree with the recommendations?
• How should we take them forward?