Equity release has been widely used for retirement income

Equity release schemes are often used to provide a retirement income. Home owners get cash and in return sign over all or parts of their property to a provider.

But the Consumers Association has branded such schemes as "expensive and lacking flexibility".

In addition, the Liberal Democrats have called on the government to act quickly to deal with ballooning levels of debt and to tackle aggressive lenders.

Last month saw record levels of new equity release loans as elderly people borrowed against the increased value of their homes.

Poor deal

Earlier this month the Treasury announced plans to consult on the regulation of equity release schemes.

Equity release, or home reversion plans, a �650m industry, involves people over the age of 60 selling their home, or a percentage of their home, to a provider.

Unfortunately, too few people understand that interest charges mount up Rebecca Fearnley Consumers' Association spokesperson

In return they receive a cash lump sum, or a monthly income, or a combination of both.

But as no mortgage is involved, the Financial Services Authority (FSA) has no power to act against firms which offer consumers a poor deal.

The Treasury has said the review, part of a wider look at the state of pensions, could mean the FSA will win the power to oversee the sector and ensure elderly people do not lose out.

Counting the cost

The Council of Mortgage Lenders has predicted that in the future the market could reach as much as �100bn as "asset rich, cash poor" pensioners try to unlock the value tied up in their homes.

But pensioners could end up counting the cost of sacrificing their homes in the pursuit of income according to Rebecca Fearnley spokesperson for the Consumers' Association.

"Unfortunately, too few people understand that interest charges mount up - if they live for a long time after the loan is taken out a substantial proportion of the value of their home can end up in the hands of the lender."

What is more, the position of equity release consumers could deteriorate further if house prices endured a sustained fall, with dire consequences for consumers and lenders alike.

"Collapsing asset values have the potential to bring into question the stability of lending institutions, which have lent substantially against assets at inflated values," Vincent Cable MP, Liberal Democrat Shadow Department for Trade and Industry (DTI) Secretary warned.

Mr Vincent added that the government should act to prevent widespread mis-selling of equity release.