Pensioners at Serious Risk from Equity Release Schemes

10.56.15am BST (GMT +0100) Thu 7th Aug 2003

Elderly homeowners could end up owing more than 6 times the amount they borrow according to research by the Consumer Association on Equity Release Schemes. Vincent Cable MP - Liberal Democrat Shadow DTI Secretary, warned the Government not to delay introducing tough regulatory measures to deal with the home reversion schemes.

He said: "These products are aimed at pensioners, among the most vulnerable in our society, sitting on hundreds of billions of pounds in equity."

"As the effect of the pensions crisis bites harder, it is inevitable that more and more pensioners will turn to these Schemes to use their homes to pay for their old age. It is unacceptable that certain of these Equity Release Schemes go unregulated."

"The Government decided to regulate certain mortgage products 3 years ago, but have done nothing about these schemes. Its time the Government acted before pensioners are thrown to the back street wolves."

"There's scope here for another mis-selling crisis - and the Government knows it. With 89% of mis-selling claims upheld against tied advisers, it is essential that pensioners seek truly independent financial advice before committing to these products."

ENDS (see Notes to Editors)

Notes to Editors:

The August issue of Which? Magazine investigates equity release amongst elderly homeowners and concludes that homeowners could end up owing 6 times the amount borrowed.

Equity release products allow homeowners to release value from their investment in their residential properties. There are 2 key routes by which this can be achieved:

'Lifetime mortgage products' - releasing equity by way of taking out a mortgage, repayable on death; and

'Reversion products' - sale of all/part of the equity, in return for right to occupy property until death.

The sale of mortgages is currently covered by the Code of Mortgage Lending, and enforced by the Mortgage Lending Compliance Board. In addition, the decision was made to bring mortgages within the remit of the Financial Services Authority ("FSA"), the regulator for financial services matters under the terms of the Financial Services and Markets Act.

The sales of reversion products are not similarly captured.

The Government has placed a value on the reversion products equity release market of £250 million.