The regulator said the unauthorised firm offering the Crossroads product claimed to offer a ‘no cost’ way to generate income from their home.
The firm’s promotional material states it can offer homeowners 5% annual income based on 50% of the value of their home for a term of up to 10 years. 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, it said.
The FSA warned: “You need to be aware that when a firm has a legal charge on your home, it means that they have rights over your 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.
“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 firm may not need authorisation, but any consumers involved in the scheme would not be covered by the Financial Services Compensation Scheme (FSCS) or be able to take any complaint to the Financial Ombudsman Service.
Simon Chalk, later life planner, Later Living said he flagged the firm to the FSA’s Whistleblower team in March.
“I am delighted that they have addressed our concerns in issuing a formal statement warning consumers of the inherent risks involved in such products. I have read internet comments from people supporting the plan but feel vindicated that the regulator is also sufficiently worried to have made a statement of this nature,” he said.
He added: “Everyone in the equity release sector has worked incredibly hard over the past 20 years to improve the quality of products and standard of advice available to homeowners. Products that circumvent regulation and high standards should be shunned by all in the industry.”
