The chief financial watchdog yesterday issued a damning verdict on the advice offered to pensioners seeking to boost their retirement income by unlocking the value of their homes.

The Financial Services Authority said more than two-thirds of advisers arranging specialist mortgages for older people were not gathering enough information about their customers to know if the products, which can result in the entire value of a home being consumed by interest payments, were suitable.

Pensioner charities and consumer groups said it was extremely worrying that many older people may be receiving poor quality financial advice.

Age Concern said feedback from its members showed that increasing numbers of "asset rich, cash poor" older people are turning to equity release products as a way to raise some extra cash and help ease financial pressures in retirement.

Research by the Council of Mortgage Lenders recently estimated that within the next five years, Britain's elderly homeowners - who own property with a value in excess of £1trillion - could be releasing up to £2bn in cash a year from their homes.

Many older people have turned to their homes as a source of income following the collapse in pension payouts and cuts in the values of other financial products.

The regulator said earlier this year that it was concerned about sales to a vulnerable section of the community of products that rely on property equity to provide an income.

So officials embarked on a shopping exercise to test the advice offered to customers.

The result was that around three-quarters of insurance companies, independent financial advisers and mortgage brokers, failed to ask for basic information such as what the customer's monthly outgoings were.

Just under two-thirds of advisers omitted to explain the pitfalls of equity release, which can also lead to people paying higher tax, not being eligible for benefits and having less to leave behind in a will.

More than half of advisers also failed to tell people what would happen if they wanted to move in the future, while similar numbers were not given information about how the loan would be repaid, or told they would have to pay an arrangement fee to set it up.

The FSA also looked at the investment advice given to consumers by seven companies once they had taken out a loan.

It said some firms were encouraging people to borrow more than they needed so that they could invest the surplus cash, earning extra commission for the advisers.