Property Income Plan and Equity Release

Doc_N

dragon53 wrote: »

I am also signed up to this scheme as an introducer, but will only commence to market it once I am satisfied that all risks are absolutely clear. The key issue is not whether 5% return is good, bad or 'too good to be true'. The only point which needs to be clarified is the risk to the property owner. I have not yet seen the escrow agreement which provides for the release of the charge in the event of default by the insurance company, nor the licence agreement which licenses the charge to the insurance company. To a great extent, the licence is the insurance company's risk. Since [TEXT DELETED BY FORUM TEAM] and Prudential have apparently signed up to the scheme they have satisfied themselves that it will provide the required equity base. If the property charge forms part of the insurance companies equity, they circumstances under which it would be at risk need to be very clearly defined. If the company defaults on payment of the monthly interest, the charge will (we are advised) be immediately released. If the company declares itself insolvent without first defaulting on interest, this position is not yet clear. The default risk is significantly mitigated because insurance companies reinsure a significant portion of their risk. This means that risks are spread across the whole market, not concentrated in any particular company. Both of the companies are AA rated.
The problem with the scheme from a wider perspective would appear to be that it does seek to circumvent the rules which the EC are putting in place to ensure financial probity on the part of the insurance industry. If a major insurer which used the scheme did suffer catastrophic losses which were not reinsured, and the underlying assets which are supposed to support the company evaporated, this would potentially place significant strains on the system. This is not an issue for the property owner however -it is an insurance company regulatory issue.
To answer ygjeeves' points on cost to the insurance company - 1. the all-up cost is likely to be below 10%. This is actually very cheap equity. 2. If the company is able to write an additional £1million of business for every £125k of equity raised, this is very cost effective for the companies.

Two main questions (quite apart from any risk to the homeowner):

1 How does taking a charge on a third party's property add to the assets of an insurance company in any way under normal international accounting standards? Or under commonsense principles, for that matter?

2 If insurance companies are trying to get round their obligations in this way, shouldn't a sensible government be trying to stopm them before there's a domino-like collapse (all over again)?

Don't these financial tricksters ever learn?

Ian_W

Doc_N wrote: »

1 How does taking a charge on a third party's property add to the assets of an insurance company in any way under normal international accounting standards? Or under commonsense principles, for that matter?

Especially as these assets which are intended to add to the solvency of the insurer aren't actually available to cover the liabilities if the insurer gets in trouble. They can't be as there is no risk to the home owner.

Priceless, absolutely priceless, smoke and mirrors. Give me Bernie Madoff every day, the "no risk" returns were better! Wouldn't touch it with someone elses bargepole.

Amazing how many low number posters are teasing about it.

Reaper

From purely a homeowners point of view it sounds a good deal. My worries are:
The insurer goes bust + the escrow holders go bust at the same time. Now the escrow holders have the money insured but by who? It seems important to me the original insurance company, the escrow holders, and the insurers of the escrow holders are not in any remote way linked to each other. Otherwise what at first seems a remote chance of them all going bust at the same time becomes much more likely.

Also I can't say I like the sound of it not being regulated by the FSA. That's a big no no for me.

On the insurer's side it woudln't surprise me if the rules were changed to stamp out this loophole.

missile

5% return on 50% of the value of my property portfolio with no risk seems too good to be true and I think it is another get rich quick scheme.

I was initially drawn to this. However I am dubious of the "no risk". There are too many examples of financial services industry playing fast and loose with other peoples money. No risk, becoming low risk, becoming you've lost money. What happened to the LLoyds names?

[TEXT DELETED BY FORUM TEAM] and Prudential circumvent EC regulation, IFAs get their cut and the rich get richer. Who carries the risk, .............. the tax payer who foots the bill for the next financial collapse.

dunstonh

IFAs get their cut and the rich get richer.

As much as I hate to say it, IFAs have a really poor record when it comes to non-regulated schemes. It's like the rule book is totally ignored and common sense goes with it.

It may be that the less compliant IFAs think they will get away with being less compliant when they are not recommending FSA authorised products/investments. However, the FSA has recently issued warnings about advisers recommending non authorised schemes. So, it is something they are concerned with (although in itself, the FSA being concerned about something does not mean its bad).

missile

dunstonh wrote: »

As much as I hate to say it, IFAs have a really poor record when it comes to non-regulated schemes. It's like the rule book is totally ignored and common sense goes with it.

I am very pleased to hear you say that.

It may be that the less compliant IFAs think they will get away with being less compliant when they are not recommending FSA authorised products/investments. However, the FSA has recently issued warnings about advisers recommending non authorised schemes. So, it is something they are concerned with (although in itself, the FSA being concerned about something does not mean its bad).

If it all went pear shape and I lost half of my property portfolio due to some unforeseen event / clause in the T&Cs, I suspect there would be some reason why the IFA was not held responsible. For example, Moneybox have recommend you seek independent legal advice, I can forsee an unscrupulous IFA using that as a get out.

Even if FSA did rule in your favour. The IFA is no longer trading done a runner to a far flung country, what would happen then?

:eek: I shall think carefully before applying for PIP :eek:

Penfold12

Doc_N wrote: »

Just a follow-up, in the interests of warning people to take great care if they're considering this product:

Unregulated equity release plan offered

The Financial Services Authority (FSA) has been made aware of the existence of an unregulated financial product.
Offered by Equity IQ, the Property Income Plan has been flagged up by the Society of Equity Release Advisers due to the fact that it is not authorised by the FSA.
The firm gets around this by claiming money from independent financial advisers in order to put them through a formal test which then 'licenses' them to sell the plan.
Simon Chalk, equity release planner at LaterLiving, commented: "Although the product may be perfectly legal and Equity IQ may argue that the plan isn't quite like a formal equity release arrangement, it will nonetheless be regarded by consumers as such so must only be considered in the same context of fully regulated products such as Home Reversion Plans and Lifetime Mortgages.
"Advisers considering selling this plan must also check that their PI insurers will cover them because it probably doesn't at present."

An equity release planner pouring scorn over an alternative product?

Lets be honest, equity release planners are exactly covered in glory are they?

Equity release and home reversion plans are totally different, to PIP's. PIP's allow full retention of title to the original property owner.

Interestingly, did you know that buy to let mortgages arent regulated products, but the process of applying for one has to be carried out in a regulated fashion, by an FSA approved representative.

Penfold12

Reaper wrote: »

From purely a homeowners point of view it sounds a good deal. My worries are:
The insurer goes bust + the escrow holders go bust at the same time. Now the escrow holders have the money insured but by who? It seems important to me the original insurance company, the escrow holders, and the insurers of the escrow holders are not in any remote way linked to each other. Otherwise what at first seems a remote chance of them all going bust at the same time becomes much more likely.

If the escrow goes bust, then the contents are unpackaged and all charges revert back to the original owners.

Also I can't say I like the sound of it not being regulated by the FSA. That's a big no no for me.

Equity release plans are regulated by the FSA, how do you feel about them?


On the insurer's side it woudln't surprise me if the rules were changed to stamp out this loophole.

Agree with you 100% on this one. I believe that there will be a significant rule change on this. BUT, how long will this take to happen?

Penfold12

missile wrote: »

I am very pleased to hear you say that.



If it all went pear shape and I lost half of my property portfolio due to some unforeseen event / clause in the T&Cs, I suspect there would be some reason why the IFA was not held responsible. For example, Moneybox have recommend you seek independent legal advice, I can forsee an unscrupulous IFA using that as a get out.

Even if FSA did rule in your favour. The IFA is no longer trading done a runner to a far flung country, what would happen then?

:eek: I shall think carefully before applying for PIP :eek:

Having seen the forms, I wouldnt expect anyone to be sold on a PIP, without having the contract issued examined by independent qualified legal counsel, irrespective of any advice given by the IFA.

I am a great believer in having all of the facts in front of me for examination, and currently we havent seen them all.

It may look as if I am defending PIP's, BUT (and there had to be one!) there is the moral dimension to consider. Are PIP's morally acceptable given the way the financial industry have conducted themselves in the last decade?

Yes, insurance companies and banks use different methods to write new business, however is this new form of gearing acceptable?

dunstonh

Are PIP's morally acceptable given the way the financial industry have conducted themselves in the last decade?

Most of the retail issues of the last decade did not occur in the last decade.