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Published Thursday, April 14th 2011

When ‘no cost’ equity release could cost you your home.

The Financial Services Authority (FSA) has advised consumers to be cautious about equity release products that claim to offer a ‘no cost’ way of using property to generate an income. They warn that they could be risking their homes.

The regulator specifically mentioned a plan called Crossroads, offered by Asset Income Plan Ltd, which claims to pay an annual income of five per cent to individuals that transfer 50 per cent of the value of their property over set periods.

To receive this income, the homeowner must allow an insurance company to take a legal charge on their property up to a maximum of 50 per cent of its value for set periods – three and ten year plans have been mentioned.

The FSA said: “You need to be aware that when a firm has a legal charge on your home, it means that they have rights over your property.

“The product information states that the only risk of you having to sell your home would be if the insurance company became insolvent and that this is reduced because the product is covered by capital risk insurance.

“It is not clear if this is correct and whatever steps may be taken to reduce the likelihood of the firm carrying this out, your home may still be at risk.”

The FSA warned that Crossroads is not regulated under FSA rules, meaning that its advisers and providers do not need to be authorised by the City regulator, “although there is not enough information currently to confirm that”.

The FSA said: “But, if it is correct, you will not be covered under the Financial Services Compensation Scheme (FSCS) or be able to take any complaint to the Financial Ombudsman Service.”

If you’re considering any kind of equity release scheme, always use a regulated provider and one that is a member of the Safe Home Income Plan (SHIP) to make sure you’re protected. Consult an equity release specialist who is independent and has access to the whole market.

Source: FT Adviser

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