Equity release

margaretclare

Geri, from what you say it could be that your parents were mis-sold this product and there may be some redress for them.

As I wrote above, this is completely different from the experience DH and I had when we did our equity release lifetime mortgage. Efforts were made to make sure that we understood all the implications in detail. Our situation is obviously different from that of your parents. In addition, you say they're 70 now - how old were they when they did this? One of us had to be 68 before we could borrow 25% of the value of the property - this was in 2003, the year after a beloved daughter died, which changed so many things for us.

dunstonh

Apoligies for posting this on multiple threads. Geri responded on antoher thread as well with the same message....

They did not understand any of the implications and had no family relative present or involved in negotiations/application.

So, did they not seek legal advice?

I believe the financial advisor was independed.

So, thats a good sign and that should mean its ok. They get the consumer protection that offers (compared to very little when going direct).

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.

Modern equity release plans (which would include those of 5 years ago) are fine. They are the option of last resort. However, product disclosure is very good and fairly easy to understand. It is recommended that people seek legal advice and involve children in the transaction but that is optional.

needless to say the house will be completely owned shortly after that by Aviva.

That is highly unlikely as you dont appear to be including house price inflation in there.

they are terribly upset at having nothing to leave the family.

So, they would prefer to go without themselves instead?

schimmellover

My mother is in a similar position, having taken out an Aviva (then Norwich Union) Lifetime mortgage 10 years ago for £10000, which now owes £21000. She was advised by her solicitor that this was a good option. She had to do repairs on the house and would not accept a loan from us. She is fiercely independent. Her thinking at the time was that she would not be around long enough for the interest to mount up. Thankfully, she was wrong! Unfortunately, she now feels that the longer she lives in the house the less she will be able to leave for her family, and is trying to find a way that she can repay the money and stop accruing further debt. Any ideas?
Even elderly people who have all their wits can find themselves in situations where they feel they have to act to prevent becoming dependent on their family - the mortgage companies take advantage of this very natural feeling, wrongly, in my opinion.

Wh05apk

schimmellover wrote: »

My mother is in a similar position, having taken out an Aviva (then Norwich Union) Lifetime mortgage 10 years ago for £10000, which now owes £21000. She was advised by her solicitor that this was a good option. She had to do repairs on the house and would not accept a loan from us. She is fiercely independent. Her thinking at the time was that she would not be around long enough for the interest to mount up. Thankfully, she was wrong! Unfortunately, she now feels that the longer she lives in the house the less she will be able to leave for her family, and is trying to find a way that she can repay the money and stop accruing further debt. Any ideas?
Even elderly people who have all their wits can find themselves in situations where they feel they have to act to prevent becoming dependent on their family - the mortgage companies take advantage of this very natural feeling, wrongly, in my opinion.

As dunstonh says equity release really is the last resort, your mother would not accept a loan from you, what else could she do? the only other option may have been to allow the property to fall into disrepair which would have eaten far more of her equity.

The lenders do not take advantage, however you have to accept rates will be higher than a conventional mortgage, what rate of return would you want on your money if you were to lend it to someone and potentially see nothing back for 20-30 years?

With regards to equity being eroded, typically most equity release mortgages are about 25% so even at 7-8% provided the property increases in value by 2-3% per year then the equity will be maintained or increased.

As dunstonh says, disclosure is now very good, clients also have to have independent legal advice, and witness/family members are recommended to be present at all meetings to avoid the elderly being "conned" so really there should be no excuse for people to not know what they are buying.

schimmellover, you state "She was advised by her solicitor that this was a good option." why was your mother seeking financial advice from a solictor?

margaretclare

I would regard 7-8% as being high (interest, that is). Ours is now 2.8% and will stay there as long as the Bank Rate stays where it is.

'Involving children'. We were urged to inform ours - my surviving daughter and DH's son and daughter. None of them was in the slightest bit interested. 'It's your house, your money, do what you want with it'. Which was how we thought anyway! The option of 'becoming dependent' on any or all of them is just not on the horizon. Nor are we bothered about 'having something left to leave to them'. We have been assured that the roof above our heads is secure for as long as we want it - there is a 'no negative equity' provision - and that is all that we asked for.

The way this was described originally 'parents did not understand' really makes me question why not. It's not THAT complicated! Not rocket science, as they say. Why did they not understand? And more particularly, your house is usually your biggest investment as well as being your home - a lot of emotional as well as financial investment. Why on earth would anyone sign anything to put this at risk - without going into all the details and making sure everything was clearly-understood and that you were both completely happy with the deal?

We may have lost on the value of the property, which will only be of interest when it comes to be finally sold, but we have had the benefit of approx £260 a month which we didn't pay to the mortgage lender since late 2003, and that has enabled us to do essential work like having the roof completely replaced. We shouldn't have gone cap-in-hand to family members for this - perish the thought! If Liz hadn't died things might have been different, but a lot changed with her death.

magpiecottage

GeriChristie wrote: »

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.

That suggests they were provided with the information needed to make an informed decision. They certainly seem to have been made aware of how the interest rolled up.

If so, they would normally be expected to take responsibility for the decision.

A consumer regretting an informed decision because it turns out, with hindsight, to be detrimental does not amount to a missale.

GeriChristie wrote: »

needless to say the house will be completely owned shortly after that by Aviva.

No it won't, it will still be owned by the borrowers - Aviva will simply have a claim on the proceeds of the sale. Anything left over will be passed on to the beneficiaries of their Wills (they have made Wills, haven't they?).

GeriChristie wrote: »

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.

That suggests the lease was relatively short. If so, then at the end the property would have reverted to the freeholder and the lease would be worthless. Purchasing the freehold will have enabled the value to be maintained.

GeriChristie wrote: »

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!

It is mutually advantageous because the lender needs it to ensure it can get its money back and the borrower ensures the value of their home is maintained.

GeriChristie wrote: »

They did not understand any of the implications

If true, that might mean they have grounds for complaint

GeriChristie wrote: »

and had no family relative present or involved in negotiations/application.

That is probably not -you say they are 70 now so 5 years ago they were 65 so it seems unlikely they would be considered too old to understand.

GeriChristie wrote: »

I believe the financial advisor was independed.

If so then your attacks on Aviva are unwarranted - they have simply supplied what was asked for.

GeriChristie wrote: »

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.

If you have the documents provided when the plan was sold it should tell you whether SHIP applied.

If they did not understand then you would have grounds for complaint against the adviser and/or the solicitor but probably not the lender.

I appreciate that these are not the answers you want to read but what you have said does not point towards a missale.

margaretclare

While this type of mortgage certainly got a bad press some years ago, none of that applies to transactions more recently. 5 years ago is no time at all. I am a little puzzled, however. They were 65. One of us had to be 68 before we could borrow 25% of the value.

They received a statement giving details of how the interest works - we get one every year so we know exactly what the score is. We even have the option to pay off the annual interest to prevent it rolling up further, if we so wished.

They did it through an independent adviser - yes, we did that. The adviser will have searched the market and come up with the most advantageous deal based on the information they gave.

It does sound very patronising and demeaning to say 'they did not understand'. It's not as difficult to understand as all that. Have they had an ordinary mortgage during their lifetime, and did they understand that? It's not much different!

dunstonh

The age you can now do equity release/lifetime mortgages has fallen. 60 is more common now. Even late 50s in a minority.

It does sound very patronising and demeaning to say 'they did not understand'.

especially if they were in their 60s at the time.

Unfortunately, she now feels that the longer she lives in the house the less she will be able to leave for her family, and is trying to find a way that she can repay the money and stop accruing further debt. Any ideas?

Ask Aviva for a redemption figure. That will give the cost of repayment. She then pays them the money and the debt is cleared. Just as it would be with a normal mortgage.

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!

Why is that worse? It the leasehold was short term then they would have ended up with no value on the property. Paying to extend it has increased the value and could be money very well spent.

SouthCoast

I know of a SHIP mortgage where the couple had used house price inflation to enable them to increase their mortgage every couple of years.

They have now maxed out their lenders LTV and are desperately waiting for property values to start rising again so that they can continue taking their cruises.

As they are now unable to continue funding their lifestyle, I wonder if they will claim misselling?

Advice from FSA:

http://www.moneymadeclear.org.uk/products/equity_release/equity_release.html

margaretclare

SouthCoast wrote: »

I know of a SHIP mortgage where the couple had used house price inflation to enable them to increase their mortgage every couple of years.

They have now maxed out their lenders LTV and are desperately waiting for property values to start rising again so that they can continue taking their cruises.

As they are now unable to continue funding their lifestyle, I wonder if they will claim misselling?

Advice from FSA:

http://www.moneymadeclear.org.uk/products/equity_release/equity_release.html

I personally do NOT hope that house prices will start rising again. As it is at present, it's near-impossible for first-time buyers to get a foothold on the fabled 'property ladder' and totally impossible if you happen to have grown up in a beautiful rural area where work is scarce but property values are high. I think the way house prices have gone over this century is totally ridiculous. Nevertheless, we benefited from it, by paying off the original mortgage. We didn't use the funds for cruises and had we not done the equity release, we'd have gone on paying the mortgage until we were 83.

especially if they were in their 60s at the time.

No one would dare to speak to me in those terms even now, and I'm a little bit older than 60s! They'd get very short shrift if they ever tried to!