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RECORD money: Beware of the pitfalls of home reversion plans; the readers' champion.


WELCOME! Within 15 minutes, you will discover how you too can become a property millionaire - this is almost certainly the easiest and lowest risk way of all...

If this opening statement doesn't grab you, take a look at these examples - one property in Herne Bay, Kent, returned a 515 per cent profit! Another in Weybridge, Surrey, made 466 per cent! And best of all, according to Cavendish Property Investments, you can make these profits without ever having to leave your armchair.

I found my way onto the Cavendish site by accident, when I was investigating a company who put an advert in a Sunday paper which caught the eye of reader Susan.

The advert was entitled Warning To Those aged 55 to 95 Thinking About Equity Release. The company giving the warning is called the Equity Release Information Centre (ERIC) and Susan, who had started to look into equity release and had become thoroughly confused, liked the idea that the company would give her independent advice.

Susan is 65 and living in a flat which is now worth pounds 185,000. Since she has no mortgage, she has considering selling the flat, but agreeing with the buyer that she can continue to live in it. These schemes are called home reversions and are on offer from a large number of companies, including Northern Rock and Norwich Union. But would ERIC give her independent advice?

My concern with many companies which profess to be advisors acting purely on your behalf, is that too often they aren't. They either take an unnecessary fee for passing you onto someone else, or take your business themselves and make no effort to find the most suitable product for you.

Either way, many companies pretend to be advisors when they are operating with their own interests in mind.

I found ERIC's website and read: "We're an independent company so instead of just offering you one plan, we'll look at a carefully selected panel of providers that are representative of the whole market to make sure we find the most suitable plan for you."

That sounded reassuring. It looked as if ERIC had no financial interest in Susan's business and would refer her to the company that best suited her needs. But at the bottom of one of the website pages, in extremely small print, I learned that the Equity Release Information Centre is a trading name of Cavendish Property Investments Ltd. And on the Cavendish website, I found the exuberant promotion of these phenomenally profitable deals.

On one hand, ERIC offers to advise elderly people on buying into home reversion schemes, on the Cavendish site, they advise people how to make money by selling them! ERIC usually charges an arrangement fee of 2.5 per cent for a home reversion plan.

Equity release schemes and home reversion plans can be great for people who have built up equity in their homes and are looking to release some cash. But let me issue a warning - home reversion plans are not regulated by the government's financial watchdog, the FSA.

Home reversion plans are not overseen by the regulator and anyone entering into such an agreement is taking a risk. The Treasury is planning to introduce new laws. But in the interim, it is concerned about this lack of regulation and warns that "unregulated providers are under no obligation to treat their customers (often vulnerable people) fairly".

The Treasury is worried that people like Susan will be offered a price which is too low or will be asked to pay too much for the right to stay in her flat.

So what about Cavendish's claims that you can make 2500 per cent profit in 10 years? The idea is that you buy the houses from elderly clients like Susan at a discount and allow them to continue to live in the property, paying little or no rent. When they die, you sell the property.

There are many problems that could arise with schemes like this. I would suggest getting advice from a well-established, regulated financial advisor or a solicitor.

Cavendish is permitted by the FSA to arrange and advice on norma regulated mortgage contracts, but this doesn't cover home reversion.

Neither is Cavendish a member of SHIP - a company supported by the leading providers of plans, which has a code of conduct to protect customers' rights. Take a look at its website and be very careful.

I TRY to help everyone who writes in, but sometimes the volume of letters makes this impossible. Please put your full name and phone number on your letter or email. Don't send any original documents or include your account details. You can email me at or write to me, Lesley Campbell, at Daily Record, One Central Quay, Glasgow G3 8DA
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Title Annotation:Business
Publication:Daily Record (Glasgow, Scotland)
Date:Dec 21, 2006
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