Equity release

GeriChristie

Hi, my parents have a 21000 lifetime mortgage they foolishly thought was a good idea, and that it meant on a 120000 valued house, the lender would only take back this percentage of the property when they die. Actually, in 10 years wit will be about 50k they owe and in 20 years a staggering £95000, ie most of their property value. They are devastated. They didnt read or understand the paperwork. Im considering whether the family could take an interest only mortgage over a similar term (sadly their age means they will likely pass away some time in between), then repay the loan when the house is sold. Is this an option?

Wh05apk

Sorry to hear your parents situation, as you have "noticed" the interest is rolled up, which over a long term can be quite frightening, equity release rates tend to be a little higher, so they are probably paying 6-7%? which reflects the lenders having to wait many years with no return.

Your point about them not reading or understanding the paperwork raises a concern, how old were they when they signed? were there any witness's present (I always insist on having witness's present - to protect both parties, and copy all paperwork to dependents if clients permit)

Of course you could raise an interest only mortgage instead, which would probably be quite a bit lower interest rate, but it would have to be secured over your own property, you would also have to meet the interest repayments yourselves, if you go this route ensure you document it, for estate/IHT planning, you may wish to place a second charge over your parents property, to protect yourselves in case your parents go into a care home.

GeriChristie

Hi

thanks for your help. Would any lenders lend our parents on an interest only basis secured only against the eventual sale of the property if guaranteed by a family member? Im guessing probably not because the agreement would eventually be with a deceased member, but if guaranteed I wonder if this would prevent the need for it to be in the family member's name and secured on our property?

Thanks again!

Wh05apk

Depends on income/affordability, several lenders have no maximum age so as long as your parents can afford the monthly interest then yes they could get a mortgage, given the low amouont and low loan to value, then it shouldn't be a problem.

margaretclare

The problem may be that your parents opted for a fixed-rate mortgage. Their loan is now attracting a much higher rate than most people's, the Bank Rate having gone down so much.

We have an equity release 'lifetime mortgage' but the interest rate now is very low, having reduced every time the Bank Rate went down. It's now 2.8%.

I can't understand why your parents 'didn't understand' what they were signing. When we did it, the conveyancing solicitor had a check-list of points he had to discuss with us, and only when he was satisfied that we understood all the implications was he allowed to proceed. One tick-box was about discussing what we were doing with family members. Another was to make sure we understood the effects on any means-tested benefits. I am certain we could not have done it if we had not been fully aware and happy with it all.

Basically we did it because we wanted to pay off an existing mortgage, to free up approx £260 a month for which we could see better and pleasanter uses, and that is what we did. Re having a normal mortgage at an advanced age, we could have continued with the repayment mortgage until we were 83. No one has been at all worried about our credit-worthiness even though we're on retirement pensions - I've just been given a NatWest Platinum credit card with a credit limit of £4,450!!!

magpiecottage

It is good practice to offer to have members of the family present when talking about this type of transaction because it can affect them but if the borrowers are still capable of taking their own decisions, it is not absolutely necessary.

I am not really sure that Wh05apk's insistence on witnesses adds value, though. A family member would not be impartial and a non-family member would not normally be an appropriate person to share personal information with.

Generally, if the scheme is covered by SHIP (Safe Home Income Plans) then an independent solicitor should have been appointed to protect your parent's interests.

However, at the moment, there is not really enough information to guide you.

For example, when was it taken out? Was it arranged direct with a provider or via an independent intermediary?

How old were your parents at the time? and now?

Was the arrangement covered by SHIP?

GeriChristie

and had the property valued, they (the lender)under value it for this purpose to probably around £65k, parents release half (£32.5k) pay off the other arrangement. After they pass, they still own half of whatever the property realises (or half of £32.5 = 17k worst case scenario) and at least have something left for their estate? At least something is left? Any thoughts?

GeriChristie

Sorry half the message disappeared. I was asking whether the other type of equity release could pay off this mess and leave a little left

eg £120000 house they value for this purpose around £65k. Parents release half (£32.5) and pay off other lifetime mortgage. They retain a half interest woth at least £17k - better than nothing? Is it possible/advisable?

magpiecottage

You are still not providing sufficient information. If it was missold then it would be unwound anyway.

At the moment you are simply panicking - stop and find out the answers to my questions.

GeriChristie

Hi

in the pack my partner's parents received is a statement that shows the amount year on year, and the new amount due having compounded the interest. The early years are bad enough (my partner's parents took £21000 from their property (worth £120000) 5 years ago at 7.odd percent - we have been told the resettlement figure now is £38k, if they live another 17 years it will be £95k and growing - needless to say the house will be completely owned shortly after that by Aviva.

Worse, they were told they must pay for the property's freehold too - clearly so the company didnt have to pay for it when they pass over. This was £4000 of the small sum they released - so in a nutshell they used the residual money to improve the home they were to lose to Aviva - win win Aviva!

They did not understand any of the implications and had no family relative present or involved in negotiations/application. I believe the financial advisor was independed. I have no idea whether there was any other safeguard (SHI) in place for them - either way they thought Aviva simply owned about 18% of their property - including any increase in value at the point they die and had no idea how the debt escalated so quickly. The money has gone, we have no means of paying this lifetime mortgage off and they are terribly upset at having nothing to leave the family.

They are 70 years of age incidentally.

Conrad

Geri - instead of equity release, you could have subsidised thier income and thereby protectied your inheritance, indeed you can do it right now if you have the means. Pay off her debt and now you pay her an income for lets say 20 years.