Has my mum been mis-sold equity release? Can she transfer?

Bridget_Morris

My elderly parents took out Equity Release from the Norwich Union in 2000. At the time their house was valued at £400,000. The amount released was £73,000 at 8.4% APR compound interest. The property is now valued at £500,000 representing a drop in value in the last year of £200,000. Next year the loan will stand at £150,000. The contract does not allow the loan to be transferred to another provider. Norwich Union was the only company providing Equity Release at the time the loan was secured. In the current market the terms of the loan are unfair because house prices are falling and interest rates are at a record low. I believe that the terms of the loan are such that it should never have been recommended in the first place (plus the broker never declared an interest). In the terms of the loan it can only be paid by selling the house (something my 82 year old mother is reluctant to do). It was never explained to my parents what would happen if house prices fall. Why can the loan not be paid off by transferring it? What difference would that make to NU? As far as I can see the agreement should never have been sold to them in the first place and there is no way out of it - ie it is unfair. As it stands, if my mother lives another ten years, which she might easily, she faces the prospect of knowing that most of her estate will end up with Norwich Union and not with her five children, which is where she would like it to be. Any ideas?

Kez100

Sounds like you are annoyed you won't get the inheritance. She would have known the score when they took the loan out. After all she wasn't repaying a penny and it would be obvious it has to be repaid one way or another.

Why should it not have been sold to them? IR's can (and do) go up or down.

koexelek

Bridget_Morris wrote: »

Norwich Union was the only company providing Equity Release at the time the loan was secured.

That does not seem right

If it is a Lifetime mortgage, then
I find it hard to believe that the loan cannot be repaid. There is sometimes an early repayment charges in the first few years, but after that, as long as you pay back the original capital and the rolled up interest to date, you should be able to pay it off.

Or Is it a Home Reversion, where part of the property has been sold to NU ?

I'd double check with NU to see exactly where you stand

dunstonh

In the current market the terms of the loan are unfair because house prices are falling and interest rates are at a record low.

Thats the risk that is taken by NU who could find there is a debt in the end and not enough equity to pay for it. You cannot pick and choose what things you like to have and what things you dont.

I believe that the terms of the loan are such that it should never have been recommended in the first place (plus the broker never declared an interest).

Were you present at the meeting? Did the Norwich Union rep give out a business card with the Norwich Union logo on the card and a Norwich Union terms of business and literature with Norwich Union branding? Did you not suspect that all this Norwich Union branding meant they worked for Norwich Union and the fact the terms of business said they worked for Norwich Union didnt give it away? Or were you not present and just guessing that it wasnt said 8 years ago?

As it stands, if my mother lives another ten years, which she might easily, she faces the prospect of knowing that most of her estate will end up with Norwich Union and not with her five children, which is where she would like it to be.

Or putting it another way, Norwich Union could end up with a liability that cannot be covered by the sale of the house.

Or another way of putting it is that your mother has had the money from the property to spend as she wishes and the children would rather they had the money and not her.

The NU schemes are actually quite good and equity release is a loan. As koexelek says, there are different types of schemes.

The most common is one where there the interest is added to the loan and no repayments are made to it. The debt will grow quite quickly as interest is charged not only on the original amount borrowed but also the interest that is added.

At the time their house was valued at £400,000. The amount released was £73,000 at 8.4% APR compound interest. The property is now valued at £500,000 representing a drop in value in the last year of £200,000.

It seems strange that the property was valued at £400k in 2000 and is only 25% higher now despite many properties seeing far greater rises in value during that period. Prices are down around 15-20% at the moment from the peak. Your values dont seem to be typical. The scenario you give on pricing suggests the property has fallen into disrepair or the area your mother lives in has gone downhill.

EdInvestor

Bridget_Morris wrote: »

The contract does not allow the loan to be transferred to another provider.

Normally if one wants to change providers, one remortgages elsewhere (possibly worth looking into as interest rates have gone down) and then pays off the original loan plus interest.

Norwich Union was the only company providing Equity Release at the time the loan was secured.

Very unlikely

https://www.ship-ltd.org

Mips

She can transfer to another provider with a lower interest rate... usually the penalty ends/reduces after 5 years

Norwich Union are a reputable provider.

Lots of equity release plans are as low as 6% now and getting lower.. best bet is contacting an Independent Financial Advisor for a free consultation.