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FSA/PN/046/2007
5 April 2007

From tomorrow (6 April) the Financial Services Authority is introducing new protections in the housing market. 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 – these 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. The FSA already regulates the other main type of equity release product, Lifetime Mortgages. HPPs 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.

Key features of the new regime are:

• firms offering HRs and HPPs must be fit and proper and appropriately resourced with staff competent to undertake this business;
• 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;
• consumers should get good quality advice and be sold suitable products which take account of their circumstances and needs; and
• if things go wrong, consumers are able to obtain redress, if appropriate.

Notes to editors

1. The FSA consulted on its regulatory proposals in CP06/8 'Regulation of Home Reversion and Home Purchase Plans', published in April 2006. PS06/12 'Regulation of Home Reversion and Home Purchase Plans' was published in October 2006 and contained feedback on this consultation and the final rules.
2. A factsheet setting out key HR information for firms was published at the end of March.
3. 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.
4. HPPs, popularly known as 'Islamic mortgages', 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.
5. The Financial Services and Markets Act 2000 (FSMA) was amended in December 2005 to enable these sale and lease arrangements to be regulated. The Treasury consulted in 2006 on the necessary changes to the Regulated Activities Order (RAO) and other relevant secondary legislation to bring HRs and HPPs into the FSA's regulatory scope and the amendments to the secondary legislation received Parliamentary approval on 24 October 2006.
6. The activities relating to HRs and HPPs that the FSA will regulate relate to entering into the contract as product provider, administering the product, arranging for people to enter into contracts (or vary existing contracts) and advising on products (and variations to products).
7. The FSA welcomes the innovation that Islamic financial products and services bring to the UK and the diversity they facilitate. The statutory principles under which the FSA operates encourages its to maintain the strength and diversity of the UK’s financial landscape. Having access to Sharia-compliant banking products provides financial services to people whose faith prevents them from using the kind of products that are normally offered by UK financial institutions. More information on this is contained in FSA Briefing Note 016.
8. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
9. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.