Consumers considering using their property to generate an income have been warned to avoid an equity release plan called Crossroads.
The Financial Services Authority (FSA) has advised people to be cautious about products that offer a 'no cost' way of releasing equity, and singled out Crossroads, offered by Asset Income Plan Limited, as a prime example.
The regulator said promotional material it had seen claims that the product pays homeowners an annual income of 5% based on 50% of the value of their property for a set period of time.
The material says that 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% of its value.
The FSA says that consumers have to be aware that when a firm has a legal charge on a home, it means that they have rights over the 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," added the regulator.
"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 said the product information explains that Crossroads is not regulated under its rules, and admits it might not have any jurisdiction over the product.
However, this would mean that consumers involved with the scheme would not be covered under the Financial Services Compensation Scheme or be able to take any complaint to the Financial Ombudsman Service.
Anyone interested in taking out an equity release product has been told to make sure their financial adviser is qualified and regulated by the FSA, as if the product sold is unregulated they will not be able to seek compensation or make a complaint if things go wrong.
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