Pensioners warned of 7% mortgage

A pensioner charity this week warned property rich, cash poor homeowners to be wary of commission hungry sales staff using hard sell tactics to sell inappropriate equity release plans.

Age Concern said pensioners must beware pushy sales pitches after unearthing evidence that many borrowers are taking out lifetime mortgages with high rates of interest.

Equity release allows a homeowner to unlock the value of their home by either borrowing against its value or to effectively sell a proportion of it to be paid back when they die.

Age Concern's Phil Veale says: "Homeowners who are being encouraged to take out an equity release mortgage at around 7%, releasing a lump sum, and then putting that capital into a standard high street savings account delivering around 4% after basic rate tax, are clearly not getting good advice," he says

The warning follows a study by the chief financial watchdog, the Financial Services Authority, which found that pensioners were also hit with high charges. Up-front fees from some advisers can exceed 2.5% of the loan value (or £1,250 on a £50,000 lump sum), higher than the fees charged when moving house.

The FSA found that more than two-thirds of advisers arranging specialist mortgages for older people were not gathering enough information about their customers to know if the products were suitable.