Care: Financial Services Industry

Baroness Gardner of Parkes Excerpts

Wednesday 26th February 2014 Lords Chamber

[Baroness Gardner of Parkes (Con)]

My Lords, I am delighted to join in this discussion, particularly as the noble Lord, Lord Lipsey, has made many important points. I am glad to hear that he is on the Equity Release Council’s advisory board. Equity release is something people know very little about; they are suspicious of it and distrust it because they do not understand it. Equity release schemes will have to prove themselves if they are to satisfy people.

I first debated a cap in connection with care costs years ago and I think that the relevant figure at that time was less than £10,000, which shocked me a bit. Even now it is less than £24,000, so it is appropriate that Dilnot has proposed a much more realistic figure for our times. However, a great difficulty arises as regards financial products and older people. In earlier times, older people could get a bridging loan from their bank. Now it does not matter what your assets are, the banks will give nothing at all if you are over 75, and some banks will not give anything to people over 70. They do not want to know you if you are in that age group. They will give you a loan if you want to buy something to rent but, if you want to use the money to cover your own future needs, despite the fact that they can easily recoup it from the sale of the property when you die, they do not want to know.

In many parts of the country, particularly London, many elderly people are capital-rich but have only a very small income. If they wish to remain in their own home, they have to find a means to raise money. At the moment, equity release or insurance seem to be the only two available options. Kensington and Chelsea is cited as having more people who have lived in their home for more than 50 years than anywhere else in the UK. When I came to London, I rented a flat near Portobello Road. The porter of the block lived in a small house in Portobello Road. Those houses were selling in the 1950s for £750. As a sitting tenant, the porter was offered his for £450, which, sadly, he could not afford. Today, those same houses are selling for well over £2 million. If a mansion tax is introduced, the residents will be liable for that tax. Tremendous social upheaval would be caused if people who have been in their house for 50 years suddenly have to find ways to release cash in order to stay there. I have asked equity release organisations whether those people could use equity release for that purpose and was told that they could. However, if they do so, there will be less money available to pay for their care. Moreover, the relevant bodies are willing to provide only a certain amount given that risk is the big factor in all financial transactions now. Everyone wants to avoid risk and we want to be sure that the banks are sound. They are risk-averse, so the whole thing is very difficult.

As I say, the public do not know enough about equity release, and regulation is very important. I was interested to hear the comments of the noble Lord, Lord Lipsey, on regulation. There are good regulations in this field—for example, the regulated home reversion plans, sale and rent back plans and home purchase plans. The ombudsman scheme to which he is referred is, I am pleased to say, free for the complainant, which is important. People are still a bit rattled by what happened at the Co-op, which everyone had thought was so sound. However, the regulator regulates standards of behaviour, not of pricing. We need to be sure that equity release does not end up like the payday loan scheme and rip people off in a big way.

The Financial Services Authority was replaced in April last year by the Financial Conduct Authority and the Prudential Regulation Authority, so a lot of these matters are still regulated, but are the Government satisfied that the systems in place are sufficiently hands-on to cope not only with existing problems but those that might arise when the schemes to which I have referred get going?

I meet people who bought their flats years ago in what were then council blocks—some, indeed, who did so in the days of Mrs Thatcher. Obviously, the value of those flats has increased hugely over that time. However, when the right to buy council flats was introduced, purchasers had the right to sell their flats back to the council if they needed money. The councils were happy to buy those flats as it cost them less to do that than to build new ones. However, no such provision is available now. The flats have all been farmed off to housing associations and housing organisations that operate schemes for the local councils, which has made life much more complicated. I hear of people who are on a pension of £170 a week but are required to pay their share of roof repairs costing £12,000 or £13,000, which is more than their income, so these issues are difficult to assess. It is tremendously difficult for people to assess whether or not they can afford to meet the costs of their care, their daily living costs and the costs of staying in their own home. Furthermore, elderly people in particular know their way round their own property and are safer in their own property than when they move to another one. People do not fall down and break a hip in a place they have lived in for years; that happens in the new place they move to. Therefore, if people do not require full-time residential care, there is great merit in staying in their own home.

I suggest that we need a free, independent advice service. However, that is no good unless skilled staff run it. It is useless if people think that they are getting good advice only to find that the person to whom they are talking knows less about the issue than they do themselves. This issue is a huge project for the future. The Government cannot think that it is resolved, all sorts of problems will come up that we do not even envisage now. The financial services can, and should, do a lot more in this area and should adopt a positive approach. It is a difficult situation as anyone running a financial services organisation is torn between satisfying the Government that they are risk-free and have plenty of spare capital, and satisfying the people who would like to avail themselves of funds from a reliable source, who then find the whole issue is much more complicated than they thought.

I am told that there is far greater confidence in the equity release market at present. Recent figures indicate growth of 12% since last year, with £473 million of housing wealth unlocked in the first six months of last year. There is currently £251 billion tied up in home equity that could be released under equity release products. That is interesting and the release of that money makes sense, but only if it can be handled in a sound way that protects the consumer and helps people. I think that the Government support the Dilnot report, and I certainly strongly support it. We want to see it come into force and benefit people.