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Fears over negative equity pledge

The equity-release market has warned that products could lose their no negative equity guarantee under new rules.

In Retirement Services director Ged Hosty says rising rates on the back of changing capital-adequacy requirements could force providers to scrap the no negative equity guarantee, which would make products less attractive.

Many industry commentators fear that under the Basel II directive, equity-release products with a no negative equity guarantee may be considered an investment product rather than a residential mortgage product, meaning that the amounts placed in reserve would have to be increased, which will push up prices.

Hosty says: “If the cost of carrying a no negative equity guarantee is too high, the market may evolve to provide products without it.”

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