FSA warns of 'false comfort' of property

The Financial Services Authority warned investors yesterday of the risks of depending too heavily on the equity in their homes to fund their retirement, saying too many people were drawing "false comfort" from their property and using it as an excuse for not saving.

The Financial Services Authority warned investors yesterday of the risks of depending too heavily on the equity in their homes to fund their retirement, saying too many people were drawing "false comfort" from their property and using it as an excuse for not saving.

In its annual financial risk outlook, the regulator highlighted consumers' attitudes to savings and the property market as one of the key hazards in the coming year, warning that too many people were too dependent on their property.

The report also sent a cautionary message to the banking sector over the rising income multiples at which they are willing to lend money. Figures from the Council of Mortgage Lenders show that the average first-time buyer now borrows more than three times their annual salary, compared with just 2.5 times five years ago.

Bradford & Bingley came under fire from consumer groups and MPs this week, after it launched a new mortgage offering to lend investors up to 130 per cent of the value of the property - thrusting them deep into negative equity from day one.

Elsewhere in the report, the FSA warned consumers about the risks of investing in structured products, which have soared in popularity over the past 12 months. While many of these are "guaranteed" and promise a full return of capital if certain benchmark targets are not hit, the regulator said it was concerned that many people do not take the effects of inflation into account. It added that those who invested in conventional equities would also get the benefits of dividends if the capital value fell, something structured products often do not offer.