Equity Release Options for Vulnerable Homeowners

Research ProjectDoug Wright -November 2007

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 people’s 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

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

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

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

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 70:30• Only two agencies in partnership with private

sector; ART Homes, WRT• Private lender require significant volumes of

loans

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

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

Questions for Workshop

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