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&#39Public not aware of equity release pitfalls&#39

The FSA is warning that consumers do not understand the risks and complexities of equity-release products.

In its report, the regulator says equity release could develop into a significant market but there are issues with both types of products in the sector – lifetime mortgages and reversions where providers take a stake in the property.

The FSA says some of the problems that consumers could encounter include negative equity, interest markedly increasing on the sum owed over time, a reduction in the value of the borrower&#39s estate and tax and benefit implications. It says with full reversions, any future equity in the property does not belong to the borrower.

The FSA says consumers should shop around for the best products and look at other ways of generating income.

Equity-release mortgages will be regulated from 2004 but some advisers are concerned at the Treasury&#39s proposal that reversions be excluded from regulation.

IFA Key Retirement Solutions head of development Dean Mirfin says: “We want full regulation for all equity-release schemes as anyone can set up as a reversionary provider.”

FSA spokeswoman Jackie Blyth says: “To improve understanding on equity-release mortgages, we are be publishing comparative tables this year and may publish further information.”

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