The generation of baby-boomers who like to "live now and pay later" could create unprecedented demand for equity release mortgages as they begin to enter retirement over the next few years, an industry expert said today.

Daren Carter, marketing director of Norwich Union Personal Finance, told leading building society chief executives today that lenders must be ready for the increase in demand with the right mortgages and the right advice in order to avoid equity release becoming the next big mis-selling scandal.

Speaking at the Building Societies Association annual conference in Manchester, Mr Carter said: "The current generation of retired homeowners have a post-war attitude to finances which makes them less likely to opt for equity release.

"It is the baby-boomers, who practically invented the live now pay later idea, who will drive demand for the schemes. But it is essential that homeowners receive quality advice if we are to avoid a misselling scandal that could set the industry back years and severely limit income options for people in retirement."

Mr Carter's predictions came after the head of a leading financial services group, speaking at the same conference yesterday, urged caution among older homeowners considering equity release.

Richard Lambert, chairman of the Retail Financial Services Forum, said that borrowers who wish to use their equity as a source of extra income in retirement should be especially cautious of equity release until the schemes are better regulated.

He said: "A lot of work still needs to be done to protect borrowers taking out equity release schemes."

The Financial Services Authority is due to publish the results of an extensive mystery shopping exercise into equity release next month.

Equity release schemes, which allow older homeowners to unlock some of the value in their property either as a lump sum or drawdown income, are typically more expensive than traditional residential loans, charging an average interest rate of 6.95 per cent.

This week, Norwich Union, one of the biggest names in the lifetime equity release mortgage market, increased rates on loans by up to 0.42 percentage points, to 6.31 per cent.

Another, Standard Life, decreased the rate on its Freestyle Lifetime Mortgage to 6.06 per cent. There is currently over £1 trillion of equity in properties owned by people over the age of 65, representing 65 per cent of the total wealth owned by this age group.

The current value of equity release lending in the UK is more than £5 billion, accounting for less than one per cent of the total mortgage market.

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