ER1 revision Chapters 1-3 19 March 2013 Thank you for joining us for todays webinar. The scheduled start time is 11.00am

ER1 revision Chapters 1-3

19 March 2013Thank you for joining us for today’s webinar.The scheduled start time is 11.00am

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ER1 revision

• Housekeeping points

• Background/context

• Timetable

Before we start:

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ER1 revision

Raising a question:

ER1 revision Chapters 1-3

Georgina OxtonEquity Release Training ManagerLV=Retirement Solutions

Sources of study support

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ER1 revision

• Examination Guide – CII (£12.00)

• RevisionMate – www.revisionmate.com

• CII updating service (Free) www.cii.co.uk/updates

Chapter 1Introduction to equity release

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1) Describe ‘equity’ and ‘equity release’

2) Explain purpose of equity release products

3) Describe features of and understand differences between lifetime mortgages and home reversion plans

4) Understand the relationship between product provider and customer

Learning objectives:

ER1 revisionC1 | Introduction to Equity Release

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What is ‘equity’?

The residual wealth of a property owner tied up in their property…

…can be positive or

negative

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What is ‘equity’?

The liquidation of some of the equity tied up in a property…

What is equity

release?

…could be achieved by downsizing, using a

conventional mortgageor using equity release

Source:UK Equity Release Market Monitor – Quarter 3 2012 | Key Retirement Solutions 10

17%

30%

19%

18%29%

53%

Help with regular bills

Treat family and friends

Clear outstanding mortgage

Pay debts (e.g. loans and credit cards)

Go on holiday

Home/garden improvements


Why release equity?used either to generate income or liquidate capital, althoughthe underlying reasons may be more diverse


The need for equity releaseThe Perfect Storm?

65+

Changing demographics People living longer | The ‘SKI’ generation

A new retirement landscape Decline of OPS and State pension provision

Uncertain markets Low inflation | poor annuity rates | volatile conditions

Lender requires no interest repayments

Profit comes from a share in the increase in property value

No longer available

First legal charge

Capital used to generate an income for life

Usually via an annuity

First legal charge

Some/all interest repaid (regular or ad-hoc basis)

Debt is more controlled

Suitability and affordability

First legal charge

Interest charged increases with compounding

Debt can double in ten years

Suitability not affordability

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Lifetime mortgages – basic products

Cash plans (interest roll-up)

Cash plans (interest repayment)

Home Income Plans

Shared Appreciation

Share Appreciation Mortgages

Home reversion is not a mortgage or any type of loan

It involves the sale of part of a property

Has an impact on rights to benefits whilst customer is living and on IHT liability on death

Can usually release a higher proportion of property value

Sentiment can impact customer’s decision

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Home reversion -v- lifetime mortgage

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Revision questions

Chapter 2Regulation of lifetime mortgages

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1) Provide the legal definition of a lifetime mortgage

2) Explain the MCOB disclosure requirements for lifetime mortgages

3) Explain the advising and selling standards imposed by MCOB for lifetime mortgages

4) Understand the self-regulation measures agreed by trade associations and lifetime mortgage providers


ER1 revisionC2 | Regulation of lifetime mortgages

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• Borrowers above a specified age

• May/may not be a specified mortgage term

• Repayment will not be sought until a specified occurrence

• Continued occupation of property

• Potential deferral of capital and interest repayment

Lifetime mortgage(FSA definitions)


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• Granted by first legal charge on land

• 40% or more used by borrower/relation for residential purposes

• Relation: spouse/partner, parent,grandparent, child, grandchild,brother or sister)


Regulated mortgage contract(FSA definitions)

• FSA handbook sets out 11 over-arching principles applying to all regulated firms

• Lifetime mortgages and home reversion plans are now regulated by MCOB rules – the ‘small print’

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Regulation of lifetime mortgages

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• Amplify FSA principles 6, 7 and 9

• Apply in their entirety to mortgage advisers

• All applies to lenders/arrangers except suitability


Advising and selling standards (S.8, MCOB)

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1. Regulatory role of the FSA

2. Service to be provided

3. Advice and recommendation/information only

4. Fees and charges payable

5. How to complain

6. Protection provided by the FOS and FSCS

Initial disclosure document

Suitability can only be assessed once a ‘fact find’ has been completed…

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Proving suitability

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MCOB Suitability Tests

Benefits outweigh adverse effects

on benefits entitlement and tax

position

Alternatives are less suitable

Customer can afford interest

repayments if applicable

Contract appropriate to customer

needs/objectives/circumstances

Contract most suitable from the

range offered within the stated

level of service

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• FSA does not require firms to be experts on State Benefits or income tax regulations

• Customer should be referred to an appropriate source of advice:


Proving suitability

• Firm can ask questions to narrow down available options

• Customer chooses based on information provided

• Scripted questions are mandatory

• If the customer is unsure about making a choice they should be urged to seek advice

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Non-advised sales

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• Key Facts Illustrations (KFI) is central to pre-application product disclosure where a firm:

• Makes a personal recommendation

• Provides information on a specific amount/type of mortgage

• Provides the means for a customer to make an application


Product disclosure requirements (S.9 MCOB)

Amplify FSA principle 7: clear, fair and not misleading

Specific contract

Amount of loan

Estimated amount to be drawn down each year (if applicable)

Property value

Estimated term of contract

Key information relating to customer and/or property to determine eligibility

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Specific contract

Amount of loan

Estimated amount to be drawn down each year (if applicable)

Property value

Estimated term of contract

Key information relating to customer and/or property to determine eligibility

Lifetime Mortgage KFIMust be personalised to show…

Special rules to cover foreign currency and shared appreciation mortgages – additional risks apply

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Disclosure at offer stage

• Formal statement that lender is prepared to do business with customer plus summary of terms and conditions

• Usually has a validity period

• Not a binding commitment to lend

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Disclosure at start of contract

• Separate requirements depending on whether

• Interest payments are required

• Interest is on a roll-up basis

• Mortgage is a drawdown arrangement

• Must also cover the cost of any ‘linked’ insurance products

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Disclosure post-sale

• Lender must provide annual statement covering certain information, plus information in the following cases:

• changes in payments required• material changes to T&Cs• addition/removal of a party to the

mortgage• changes to amounts drawn

down/amount owed

• Expanded KFI to be provided for further advances

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Equity Release Council

• Launched 28 May 2012

• Represents providers, advisers, solicitors and surveyors

• Promotes high standards in best interests of customers

• Voluntary Code of Conduct incorporating SHIP standards

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Lifetime right to live in property

Fair and clear terms and conditions

The right to move without financial penalty

Independent legal advice

No negative equity guarantee

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Regulatory reform(Financial Services Act 2012)

• Financial Policy Committee (FPC)Executive power over financial supervision

• Prudential Regulatory Authority (PRA)Responsibility for prudential regulation of financial firms

• Financial Conduct Authority (FCA)Promoting confidence in the financial system

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Revision questions

Chapter 3Regulation of home reversion plans

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ER1 revisionC3 | Regulation of home reversion plans

1) Define a home reversion plan

2) Understand the rationale for regulation

3) Describe how product providers regulate themselves

4) Describe how consumers are protected by the law

• Reversion provider buys all/part of a ‘qualifying interest in land’

• Reversion occupier (or related person) is entitled to occupy at least 40% of the land until

• Entry into permanent residential care

• Death

• End of a specified period(min 20 years)

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FSA definition

Note the definition does NOT refer to elderly customers

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Home Reversion Plans and MCOB

• Regulation began on 6 April 2007

• Lifetime mortgage rules amended and amplified

• Clear, fair and not misleading

• Plain, intelligible language

• May only be referred to as ‘Home Reversion Plans’ in literature and advertisements

• No cold-calling permitted (same for lifetime mortgages)

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Same suitability tests as for lifetime mortgages

Again, advisers do not have to be experts on tax legislation & State Benefits Scripted questions must

be used as for lifetime mortgages

SuitabilityNon advised sales

Specific rules governing regulated firms in connection with home reversion plans

Treating Customers Fairly (TCF)

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1. Role of the FSA

2. Whose products are offered

3. Service to be provided

4. Advice and recommendation/information only

5. Fees and charges payable

6. Are fees refundable

7. Who is the regulator

8. How to complain

9. Protection provided by the FSCS

Initial disclosure document

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Valuing the property

• Must be undertaken by a competent valuer, independent of the provider

• Essential to get true and accurate valuation as equity transfer is expressed as a percentage of the open market value

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Partial Home Reversion Plans

• Where customer retains a stake in the property, provider must:

• Take steps to sell property within a reasonable time following termination

• Achieve the best price reasonably obtainable

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Why regulate Home Reversion Plans?

• Complex products and tenancy agreements

• Prevent mis-selling

• Protect the vulnerable

• Valuations process must be robust

• Complaints and compensation – home reversion now also within scope of FOS and FSCS

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Revision questions

Any questions? Give us a moment and we will review any questions we have received.

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Queries?

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?Please don’t hesitate to ask us for help.

Contact the sales support team on 0800 0288 974 (option 4)

Sales contacts:Gwyn Airdrie 07802 463967Georgina Oxton 07501 224714

For textphone first dial 18001. Calls may be recorded for training and monitoring purposes.

This is for financial advisers only

Not to be used after 30 September 2013

This presentation is based on our understanding of current legislation as at 2 January 2013 applicable in England and Wales and HM Revenue & Customs practice which may

change inthe future. We cannot accept responsibility for any action arising as a result of the informationcontained in this presentation.

LV Equity Release Limited, Keynes House, Tilehouse Street, Hitchin, Herts, SG5 2DX

LV= is a registered trade mark of Liverpool Victoria Friendly Society Limited (LVFS) a trading style ofthe Liverpool Victoria group of companies. LV Equity Release Limited is registered in England (No1951289) and is authorised and regulated by the Financial Services Authority (register number306287). LVFS is a member of the ABI, AFM and ILAG. Registered address: County Gates, Bournemouth BH1 2NF. Tel: 01202 292333.

21331770 01/13

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Documents

ER1 revision Chapters 1-3 19 March 2013 Thank you for joining us for todays webinar. The scheduled start time is 11.00am