Financial guru Martin Lewis slammed equity release as the next big mis-selling scandal after endowment policies and payment protection insurance, on ITV’s Tonight with Trevor McDonald last night.
The programme investigated the legacy of home income plans and shared appreciation mortgages, which were sold in the 80s and 90s.
The programme drew upon several case studies who had lost large amounts of money by signing up for unsuitable equity release schemes.
David Wilson and his wife owned their 120,000 house outright, but in 1989 they decided to take out a Home Income Plan to release 30,000 for their sons business.
The equity release provider, West Bromwich, invested some of this money for them in order that the proceeds of the investment pay off the interest on the loan. But because the stock market did not perform, the interest on the loan was not paid off and the debt now stands at 217,000.
Wilson, whose wife has since passed away, cannot downsize because West Bromwich now own such a large a proportion of his property that he would not be able to buy anywhere else with the remainder.
Interviewed on the programme, Jon King, chief executive officer of Safe Home Income Plans explained that fiendishly complicated schemes of this kind should never have been offered, especially as the huge risk of the stock market was often never discussed with clients.
Other case studies used included Reg Baylis who took out a shared appreciation mortgage with Barclays.
In 1998, he borrowed 20,000, but due to massive house price inflation the debt stood at 99,000 eight years later.
The home reversions market is due to come under Financial Services Authority on April 15.