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# Saga Cuts Rate

August 2005 Saga has just reduced the cost of its lifetime mortgages (a form of Equity Release) by 0.65% to 6.39% fixed for the lifetime of the loan. This means that the competition is hotting up within the Equity Release sector especially if you take on board the news that the Prudential is about to enter the fray. The Financial Regulator Has Highlighted Problems With Equity Release The Pru will soon be selling Equity Release plans which is claims addresses the concerns raised by the regulator on how these products are sold. The Regulator's main problems with Equity Release are;

- ER schemes have generally been sold on the back of poor advice from salesman
- It found that in 70% of the cases which it investigated financial advisors had failed to gather significant information about their customers before selling them a plan (LM Comment: Wouldn't be surprised if the motto of the average financial product salesman was 'don't let the facts get in the way of generating commissions'!)
- One of the most dramatic discoveries the FSA made was that many advisors had suggested that homeowners take out a lump sum (from their property) and reinvest this in a bond, taking 5% withdrawls from the bond to income purposes
- This is actually frightening because it's a clear case of more and more money being skimmed off to pay for extra commissions and fees
- And the final problem that the FSA found with Equity Release is that it's an expensive way to generate an income or capital
- Far better to trade down the property value and remain debt free.

The Prudential's Equity Release Plan The Pru from September will start marketing it's own Equity Release scheme called the Property Value Release which it hopes will entice the market as it argues it's far more flexible.

- The Property Value Release will be a Lifetime mortgage - Click Here for an explanation on Lifetime Mortgages
- Gives homeowners the option of drawing down the loan in stages
- First stage has to be a minimum of £20,000, then lump sums of up to £5,000 a time
- Pru argues that customers will only have to draw down what they want/need
- The Lifetime Mortgage is guaranteed against the property's value but unlike a normal mortgage no monthly payments are due
- Monthly payments are therefore rolled up (with interest levied) and the final amount is settled when the property is sold

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