Equity release plans criticised (UK)
Equity release schemes, which allow people to unlock money tied up in their property, have been criticised by the Which? consumer group.
The organisation said the policies are expensive, inflexible and risky.
The schemes are a form of mortgage which typically allow elderly home owners to cash in on the value of their homes but repay the debt on death.
However, insurance firm Norwich Union criticised the report, saying Which? had mis-represented the industry.
Risky borrowing?
In the latest edition of its magazine, Which? says equity release schemes are risky - a view officially supported by the Financial Services Authority.
"The majority of the products available just aren't doing the job fairly, they are not giving value for money and they are not explaining the risk properly upfront," said Which's principal researcher, Theresa Fritz.
The magazine says the main problem for borrowers - or for those who inherit their homes when they die - is that equity release schemes can lead to a large chunk of the value of a home being swallowed up to repay the loan, plus interest.
It calculates that borrowing £80,000 against a property worth £350,000 could see a repayment of £256,570 being demanded after 20 years.
And it singles out the Norwich Union insurance company for particular criticism. It currently has the largest share of the market for selling these schemes.
'Clear advertising'
But Daren Carter, sales and marketing director at Norwich Union Personal Finance, hit back, saying its advertising was clear.
"We are very disappointed with this (report) and think it is a mis-representation of the industry," Mr Carter said.
"We have been involved in the market since 1998 and when we first entered it there was no regulation, although we always treated the product as if it was regulated.
"We were also at the forefront of lobbying to get the products regulated."
News date: 05 January 2006 - 10:55
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