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CML warns on equity-release perils

The Council of Mortgage Lenders has done a U-turn on equity-release

mortgages and is now warning the mortgage industry on the possible dangers.

The move flies in the face of previous CML optimism about the products and

the eagerness of lenders to see further product and market innovation.

CML senior economist Fionnuala Earley says large amounts of equity

withdrawal should be of concern both to lenders and borrowers.

Earley says withdrawing housing equity – which allows homeowners to unlock

the wealth tied up in the bricks and mortar value of their house – risks

over-indebtedness and overheating the economy through increased levels of

consumption.

This could fuel inflation and increase interest, forcing overstretched

borrowers into arrears and raising the spectre of repossessions.

However, in February, CML chairman Philip Williamson told the CML&#39s annual

lunch meeting that equity release could be used positively to supplement

pensions and pay for long-term care.

He issued a rallying cry to the industry to push for equity-release

regulation and made no mention of the problems highlighted by Earley.

Norwich Union media relations manager Louise Zucchi says: “It is too early

to talk about equity release in the way the CML has because you need to

know how people are going to spend their equity before predicting

problems.”

Scottish Amicable national mortgage manager John Mal^_one says: “Equity

release will be the next product phenomenon in the lending mar^_ket. The

benefits far outweigh the supposed downside.”

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