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Last Updated: Tuesday, 24 May 2005, 14:24 GMT 15:24 UK
Watchdog warns on equity release
Equity release schemes have become increasingly popular
Many financial advisers are not carrying out proper checks before recommending equity release products to clients, the City watchdog has warned.

Mystery shoppers found that seven out of 10 advisers were not gathering enough information to assess if equity release was too risky for the client.

Under equity release, people sign over part of their home to a lender in return for a lump sum or income.

The Financial Services Authority (FSA) said the findings were "disappointing".

Britons borrowed 1.2bn through equity release in 2004, a rise of 10% on 2003. However, consumer groups have expressed concern that some equity release schemes are being mis-sold.

Unsuitable product

Mystery shoppers working for the FSA visited 20 UK financial advice firms posing as potential clients.

The shoppers found that in many cases advisers recommended equity release before checking whether this type of product properly suited their needs.

In addition, 60% of advisers did not explain the potential drawbacks of equity release.

"Our work has found another disappointing instance of consumers being given poor quality advice," said Clive Briault, FSA managing director of retail markets.

"Some people releasing equity from their homes are being advised to borrow more than they need and to invest these additional funds, which can be a high risk strategy."

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