Mis-sold equity release mortgage

jonnyl

Advice needed please...

My dad died year before last, 05, and I had to sort out his estate. Mostly simple but one problem he had taken out an equity or interest only mortgage in 1985. My mum didn't know about it but had signed it, or so it seems. It isn't a huge amount in relation to the equity in the house she still lives in but is worrying her and she is still paying £65 a month.

When we went to Halifax the manager commented that the loan had more than been paid back and then restructured it to a lower amount although still interest only.

I have to question why in 1985 my Dad was advised to take out this type of loan when he was 55 and both he and my Mother were in full time employment. I remember my first mortgage, an endowment!!, taken out a few years after that and wonder if there was mis-selling of this type of product?

Any views or advice gratefully received.

Thanks

Jon

maninthestreet

Mortgage selling wasnt subject to regulation back in 1985. In fact, neither were investments (including endowments), it wasnt until the Financial Services Act came into force in April 1988 that investments were regulated.

dunstonh

I have to question why in 1985 my Dad was advised to take out this type of loan when he was 55 and both he and my Mother were in full time employment.

The question I have to ask is why did your Dad ask them to do an interest only mortgage?

You assume it was a mis-sale but as mentioned above, there was no regulation back then and your parents would have had to take that offer letter to the solicitors to sign and the solicitor would have gone through the terms and risks with them.

He arranged it through the building society so a mortgage adviser wasnt used (there wern't mortgage advisers back then as there is now). It would have been a securities clerk that dealt with the admin. There were no sales targets and no sales regime. You went in and asked for it and they would work out if you could afford it and if so, they would prepare the paperwork. Very different to today.

jonnyl

Thanks for the reply. The bit that interests me is the part about the solicitor. My mum is adamant that she may have signed it but wasn't aware of it and doesn't remember going to the solicitor. Presumably the Building Soc should have copies of those docs? I am slightly cynical about your portrayal about the sales of the buildings socs products being so consumer lead. Why if this was the case did they need regulating 3 years later? If it was merely an admin exercise who was doing something wrong that needed that level of control. My father unfortunately was somewhat naive when it came to finances and would have taken almost any advice they gave. 20 30 or 40 years of interest and then still owe the capital sum when you die sounds a bit like endowments and a bit dodgy to me.

EdInvestor

jonnyl wrote:

I have to question why in 1985 my Dad was advised to take out this type of loan when he was 55 and both he and my Mother were in full time employment. I remember my first mortgage, an endowment!!

Perhaps this *was* originally an endowment mortgage,but the endowment was cashed in somewhere along the line (perhaps to pay off debt, or perhaps because the premiums were unaffordable at the time?)

That would have left the interest only mortgage, which was affordable, but no repayment vehicle.Not uncommon, I'd have thought, particularly if there was a decent amount of equity in the property.

BTW this case does not seem to have anything to do with equity release, where there would not be a monthly payment being made.

dunstonh

My mum is adamant that she may have signed it but wasn't aware of it and doesn't remember going to the solicitor.

In the 80s it was always recommended to see a solicitor to sign the docs. It was automatic on house purchase but it was down the consumer to decide at the end of day. Your father may have chosen not to go to a solicitor to save costs. However, that would mean that he took on responsibility for knowing what the contract said.

Presumably the Building Soc should have copies of those docs?

Yes. Its the contract.

I am slightly cynical about your portrayal about the sales of the buildings socs products being so consumer lead. Why if this was the case did they need regulating 3 years later?

They didnt get regulated three years later. That only happened a couple of years ago. Also, I did that role in the 80s so know what and how things were done at the time quite well. The sales environment didnt kick in until the start of the 90s. If someone came in asking for a mortgage, you were focused on the lending. You didnt even bother about cross sales of insurance as that wasnt part of your job then. A complete contrast to today.

My father unfortunately was somewhat naive when it came to finances and would have taken almost any advice they gave. 20 30 or 40 years of interest and then still owe the capital sum when you die sounds a bit like endowments and a bit dodgy to me.

If your father was naive, then he should have sought the advice of a solicitor before signing the contract. I have dealt with people in this position before where they only went interest only with the intention of switching to repayment mortgage at a later date in the hope that the cost of the mortgage would be reduced due to inflation (which it was in the 60s,70s and 80s). Many forget to switch and leave it too late. Quite a lot of the occassions the wife didnt know.

You are looking to blame someone and I'm afraid that probably has to be your father. In all the cases I have dealt with, it has always been the husband or the couple together.

Logically, why didnt your father query the lending position every year when the statement came in showing no drop in the mortgage? why did he not use a solicitor? why didnt the contract raise any alarm bells?

Ed is also correct in stating that he may have taken an endowment out. In the high interest rate days in the 90s, many people cancelled their endowments to keep costs down and some never got round to replacing them when things stabilised. This may also have been the case.

I do fear that as your mother seems to be so much in the dark about it that you will never know.

EdInvestor

In 1985 almost certainly the Halifax would have required a repayment vehicle (usually an endowment) to go alongside the mortgage. (A "pension mortgage" might have been a possibility as well, though this is fairly unlikely as in that case the mortgage would probably have been automatically repaid when he died and the death benefit was paid out.)

IIRC Halifax was mostly selling Standard Life policies in those days, does your Mum remember anything about an SL endowment?

If the parents did have one, it would have originally been "assigned" to the lender, and would have to have been "unassigned" in order for Dad to have surrendered or sold it. The Halifax might have a record of that, if it wasn't too long ago.

jamesd

jonnyl wrote:

Mostly simple but one problem he had taken out an equity or interest only mortgage in 1985. ... It isn't a huge amount in relation to the equity in the house she still lives in but is worrying her and she is still paying £65 a month. ... When we went to Halifax the manager commented that the loan had more than been paid back and then restructured it to a lower amount although still interest only.

There's really not enough information there to say much. What did he mean by "more than paid back" for example?

How was it restructured? The monthly payment, if it was all interest only, could only really have been reduced by changing to a mortgage with a lower interest rate, so it's possible that they had been on SVR for a long time.

We'd really need to know more about the original mortgage terms, the current terms and whether any repayment method was originally set up and what happened to it. It may be that the money to repay the mortgage was placed in other investments at some point over the years, quite likely ISA funds, for example.

Are there any plans to repay the outstanding mortgage balance over time?

jonnyl wrote:

I have to question why in 1985 my Dad was advised to take out this type of loan when he was 55 and both he and my Mother were in full time employment. I remember my first mortgage, an endowment!!, taken out a few years after that and wonder if there was mis-selling of this type of product?

Unlikely since this sort of produce was viewed as a good deal at the time and was expected to perform well. Reduced mortgage payments have probably delivered more in income than the outstanding mortgage balance, so it probably worked out well overall. Those who had endowments ending in the last 5-6 years and potentially the next couple are the ones who might be less well off, but even that is doubtful for most ending after the first year or three after the crash once you allow for the reduced payments.

jonnyl

To go back to the facts as I know them. I was told in a meeting at the Halifax that this was an equity release "loan", "mortgage" whatever. My comment that "it has more than been paid back" was the branch managers comment when I visited after my Father died. She seem surprised that he had taken out this type of loan. My understanding was that this type of loan was for retired peole to enable them to release funds from the equity in their house as they only had a pension income. The Building Soc. retain an interest in the property to be paid off after the death of the lendees. As I said in my original mail both my Father and Mother were in full time employment with no mortgage. I don't know if this makes things clearer or not?

This is the only "loan" on his estate and was not typical of his borrowing. In terms of "blame" I am not looking to blame only to see if this would have been unusual in their circumstances at the time.

Thanks you for your comments and if anyone has a similar situation I would be glad to hear from them.

dunstonh

To go back to the facts as I know them. I was told in a meeting at the Halifax that this was an equity release "loan", "mortgage" whatever.

Equity release, as we know it today (with the various options available), didnt really exist back then. Interest only mortgages were one way of doing it. This could either be with a monthly payment or with the interest being added to the loan with no monthly payments made.

Most people pay back 2-3 times the amount borrowed in a 25 year period so the comment about paying more back from the HBOS clerk suggests inexperience. It is also possible that the clerk didnt do mortgages back in the 80s and wasnt aware of the options available back then. Products back then were more limited and more expensive than today.

jamesd

What dunstonh has suggested seems most likely. If so, it will be an ongoing interest only mortgage and you should do the normal shopping around for best interest only mortgage rates, though that may be difficult for age reasons.

There's no blame here, so far as I can see. If it does seem that the interest rate is high it might be worthwhile investigating other options, like you repaying the loan and being paid back by your mother or out of her estate.