HOMEOWNERS who tap into the equity in their homes received greater protection on Friday, but experts warn that so-called equity-release schemes are unsuitable for most people, writes Clare Francis.

About £1.2 billion was unlocked from people’s homes in 2006, according to Safe Home Income Plans (Ship), an industry body, and it estimates this will rise to £1.7 billion this year.

Thousands of people use equity-release schemes either to boost their income, or give the money away to save inheritance tax.

There are two types of equity release — lifetime mortgages, where you borrow the money and repay it when you die or move into care, and home-reversion schemes, where you sell a proportion of your property to a firm in return for a cash lump sum.

Until now, only lifetime mortgages have been regulated by the Financial Services Authority, the City regulator, but home-reversion schemes were added on Friday.

The FSA said: “Consumers need to be absolutely sure they are getting the right advice and that equity release will not leave them worse off. Releasing equity and investing it can result in your income-tax status changing; you may also no longer be eligible for certain state benefits.”

If things do go wrong, consumers who buy reversion schemes can now seek redress through the Financial Ombudsman Service.

The rates on lifetime mortgages have fallen in recent years. You can now get a fixed rate at about 6% compared with 8%-8.5% in 2001. Even so, they are still an expensive option.

The main drawback is that you have no idea how long you will live and therefore how much it will end up costing you — or your heirs.

If you go for a product from a lender that is a member of Ship, you are guaranteed not to be left in negative equity if the debt exceeds that property’s value — were that to happen, the lender would take the hit. However, there is no guarantee that there would be any money left to pass on to your heirs.

With a lifetime mortgage the amount you owe roughly doubles every 12 years. Someone borrowing £50,000 at a rate of 5.99% would owe £89,458 after 10 years and £119,658 after 15 years, according to Key Retirement Solutions, an adviser that specialises in equity release.

At least with home-reversion schemes you know exactly what you are getting, but the firm will not offer the full market value for your home.