An advertising watchdog is warning troubled homeowners to be wary of “emotionally charged” ads that tempt them to cash out of their property.

Brokers are reporting a growing number of older borrowers looking to take out high-cost loans to free up equity to handle rising bills.

And there are fears that some financial firms are exploiting the cost-of-living crisis by promoting capital issuance as a way to “relieve the pressure”.

Desperate: Brokers report growing number of older borrowers looking to take out high-cost loans to free up equity to cope with rising bills

The Advertising Standards Agency (ASA) has told Money Mail it has seen a surge in complaints, which it is taking “very seriously”.

It said that while TV ads aired by lenders do not usually directly mention the cost of living, members of the public are concerned that they are “emotionally charged and contain an element of fear-mongering” at a time when budgets are tight. Others complained that the ad was misleading.

In total, the regulator has received around 30 complaints this year, but it adds that the number has increased “recently”.

The home equity exemption allows home owners aged 55 and over to avoid paying cash tax on the value of their homes.

Loans do not have to be repaid until the borrower dies or goes into guardianship. But if you don’t make your monthly payments, compounding interest can quickly eat away at the value of your property.

There can also be significant penalties if you want to pay off your debt early. And the average interest rate charged jumped from 4.28 percent to 6.02 percent last year, according to data from analysts Moneyfacts.

Despite this, the popularity of loans has grown among those who are property-rich but cash-poor.

Home owners pulled a record £3.1 billion out of property in the first half of the year – a 36 per cent rise on the same period in 2021 – the Equity Release Council, a trade body, showed.

With retirees on fixed incomes among those hardest hit by the rising cost of living, the temptation to follow suit may be even greater.

According to insurance company Just Group, the over-55s are worth £4.4 trillion.

However, experts caution that equity issuance should be a last resort and that there are often other ways to increase your income.

Available cash: The home equity exemption allows home owners aged 55 and over to avoid cash tax on the value of their homes

Available cash: The home equity exemption allows home owners aged 55 and over to avoid cash tax on the value of their homes

Broker Age Partnership recorded a 20 per cent year-on-year increase in capital issue inquiries from June to August, which it believes is due to the rapid rise in the cost of living.

“People are panicking,” says Andrew Morris, senior equity adviser at the Age Partnership.

“But when we talk about borrowers’ income and expenses, often they realize that by cutting back on luxury items, they don’t have to free up money.”

Meanwhile, Warrington-based broker Mortgageable recorded a 162 per cent rise in the number of people applying for equity loans in August compared to the same month in 2021.

“Many of these home owners seem very keen to continue the equity release as a matter of urgency,” says adviser Kev Tilley.

“Increasing numbers want capital release to meet demand for regular accounts, rather than for traditional reasons such as depositing for their children, which is a big concern.”

Equity advisors should first encourage borrowers to consider whether savings, investments or a traditional retirement mortgage is more appropriate.

Other alternatives include applying for family assistance, taking in boarders, downsizing and reviewing benefit entitlements.

If you are on a low income and entitled to a state pension, you may be able to claim pension credit, for example.

Financial adviser Robert Litherland of Bespoke Wealth recently visited a homeowner in her 60s who lived alone in a mortgage-free bungalow worth around £500,000 near Portsmouth. She asked for a capital release because she was afraid that her savings would soon run out.

Mr Leatherland discovered she was now spending £400 more each month than she had set aside to live on and instead asked if she had considered downsizing to free up the extra cash she needed.

Penalties: If you don't make your monthly payments, compounding interest can quickly eat away at the value of your home

Penalties: If you don’t make your monthly payments, compounding interest can quickly eat away at the value of your home

She has since moved to a cheaper home and has £150,000 to live on after selling her bungalow.

“The cost of living is on everyone’s mind,” says Mr Leatherland. “But taking on long-term debt, such as releasing equity, because you’re worried about a short-term problem, such as rising energy costs, is not an appropriate solution.”

For homeowners who don’t want to downsize or don’t care about leaving an inheritance to family members, equity release may be the right solution.

There are also ways you can reduce the interest over the life of the loan. Instead of taking one big lump sum, many now withdraw the initial amount and leave the rest of their money in a draft account that doesn’t earn interest until they want to access it.

And all of the new plans allow borrowers to pay off 10 percent of their debt each year without penalty if their financial situation improves in the future.

This means that a customer borrowing £80,000 at an average rate of 6.02 per cent could theoretically repay the loan over 15 years.

Jim Boyd, chief executive of the Equity Release Council, says: “Equity release is encouraged, not sold. Any plan adopted should be based on a calm and detailed assessment of the client’s long-term needs, not an emotional response to short-term pressures.

moneymail@dailymail.co.uk

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