'Pure' home equity scheme launched

HOME equity release schemes have given off a nasty smell for years. Vulnerable pensioners have been victims of sharp practice in the industry, which enables the retired to free up the value of their homes while continuing to live in them.

But next month an entrepreneur who wants to push the cowboys out is bringing his own equity release firm to the junior stock market AIM, and is confident of raising £18m in fresh capital.

Graeme Marshall says his firm, Sovereign Reversions, will be the first pure home equity release business on the stock market. It is already quoted on the lightly regulated Ofex market.

Sovereign has grown fast by swallowing rivals in the home reversion market, an unfashionable sub-sector of the fast-growing £1.2bn equity release market. It owns 459 properties, and will be valued at about £32m after the capital raising.

The Council of Mortgage Lenders says the equity release market could expand to between £4bn and £5bn a year over the next 10 years as the ranks of property-rich, cash-poor oldsters grows.

'The need is there,' agrees Marshall. 'Pensions are not doing the job. Annuity rates are on the floor.'

Home reversions work like this: homeowners sell all or part of their homes at a discount in return for a lump sum. They then have the right to continue living in them until they die or choose to move out. The discount depends on their life expectancy.

Until now, most people have preferred to crystallise a lump sum from their homes through lifetime mortgages. But times are changing, says Marshall, who argues that house prices levelling out or falling and interest rates rising make home reversions a shrewder choice. 'There will be a move back towards reversions,' he predicts.

Marshall, who has a £3m stake in the business, is concerned that a single unscrupulous operator could do serious PR damage to the industry. Sovereign is an active member of the trade body Safe Home Income Plans, which sets down minimum standards.

It has also been actively lobbying the Treasury for reversions to join lifetime mortgages in being regulated by the Financial Services Authority from this autumn, so far without success.