The current pensions crisis and discouraging stock market returns, together with rising house prices and increased life expectancy, mean that many are now considering the release of funds from their prime financial asset - their own home.

Equity release allows people to unlock some of the value of their property to provide either capital or income, giving them the freedom to continue to live the life they want into an active old age.

Already tens of thousands of home owners have borrowed billions against their properties, and the Council of Mortgage Lenders (CML) predicts another huge surge in demand - perhaps doubling over the next two years - from those who can’t make ends meet on their pensions.

But this kind of new financial freedom can come at a price. Earlier this year The Financial Services Authority warned elderly consumers to treat such schemes with great caution because of the risks involved. Hundreds are still suffering the after-effects of the home income plan scandal of the late 1980s who, when plunging property values and high interest rates hit in the 1990s, lost their homes because of soaring debt.

There are a variety of equity release products, but the most common is the rolled-up loan. The loan plus interest, which adds up year by year, is only repaid when the house is sold or the owner dies. Of course the rate of interest is much higher than that of other mortgages because the lender’s money is tied up over an unpredictable period of time. Problems occur if the amount rolls up to the point where it exceeds the value of the house. For instance, with a rate of 10%, the debt would double in just over seven years’.

Those considering such schemes should insist on protections such as those enshrined by companies belonging to an organisation called Safe Home Income Plans (SHIP). These include ensuring that their customers:

• Will always have a roof over their heads;
• Will never owe more than the value of their property;
• Will be allowed to move house if they want to;
• Will take legal advice from an independent solicitor.

The whole area is in need of greater regulation to avoid the disasters of the past, according to the CML. Many good schemes do comply with SHIP rules but some mortgage lenders are still advancing money without strong safeguards for the consumer. Lack of clarity and proper explanation can hide charges that are far higher, over time, than the value of the product delivered.

The bottom line is: think very carefully before taking money out of your home. Simply “downsizing” to a smaller property or less expensive area might be both safer and more cost-effective.