Loan causing problems with inheritance

delscot

Hi there

I'm new to this, so apologies for cross-posting, this is a copy of a thread I just put in mortgages as I'm desperate to get some answers.

I'm in a bit of a strange situation and am hoping someone can shed some light on it. My Gran died in October, leaving her house to my Mum and Uncle. Unfortunately, there is a strange mortgage deal outstanding and they look set to lose out on a lot of money to the bank.

A little history...when my Pop was still here, he was mad on insurance and shares and had lots of both. When the market crashed in the early 90s, he decided to take a loan out against the house to recoup some of his losses. At the time, the bank offered him £20,000 against a property worth approx £80,000. However, tied into the deal was that upon selling the house, the bank would receive their £20,000 plus THREE-QUARTERS of the difference in value!!!

The bank has just sent in a surveyor to have the place valued. We are still awaiting the results, but expect it to be approx. £150,000 now. This means that the bank would get £72,500; leaving Mum and Uncle to split £77,500 (before solicitor's fees etc). I know this is still a substantial sum, but it does seem somewhat disgusting.

Think I already know the answer to this, but does anyone know if this can be challenged or if there is anything we can do?

Thanks in advance for your help!

Tixy

I suspect the mortgage will stand and the bank will get there proportion. Do you have the original documents to the loan?

Does the bank define the difference in value based on the selling price when its sold, or their valuer's value. Something to watch out for and consider if the value is reasonable.

Presumably Pop owned the house in the 90s? or Pop and Gran together?

Were repayments made on the £20k loan? or was it £20k unfront but no repayments/interest until the house is sold?

delscot

Thanks Tixy - I'll have to see if Mum has the original loan documents somewhere. I imagine they will do given Pop was quite meticulous with his paperwork!!!

The difference between valuation and sale value could be quite considerable in this climate, even if the valuer accounts for market conditions...something to look out for.

I think they may have bought the house outright when they retired, but if not, my Pop was probably the only name on the mortgage as he ran his own business with Gran helping out - I'd have to check though. Will this make a difference?

No repayments or interest have been made since taking out the loan.

dealer_wins

So he agreed the terms of the loan and signed. Obviously he thought it was happy with the terms and didnt think they were "disgusting".

Im guessing it was just a loan with no monthly repayments, in which case is looks reasonably fair to me.

delscot

Thanks, but I don't think my Pop could have foreseen the value of his house doubling - in that context, it probably didn't seem that bad a deal.

Tixy

Its one of those that sounds like a bad deal at first glance. But considering the age of the loan the bank won't have benefited significantly compared to a receiving interest on a £20k loan for all those years (and then the capital back).

If the house was in gran's name as well as Pop's then they'd both have had to sign the paperwork, but aside from that it wouldn't matter (wasn't entirely sure if Pop was grandfather or father).

dealer_wins

delscot wrote: »

Thanks, but I don't think my Pop could have foreseen the value of his house doubling - in that context, it probably didn't seem that bad a deal.

Well if the property had stayed at its 1990s price you would be getting £60000. (£80000 value minus the loan).

If it had gone up more modestly to say £100000, you would be getting £65000.

I dont know about you but I think its a case of the higher the better!!

antrobus

delscot wrote: »

....

No repayments or interest have been made since taking out the loan.

So "Pop" received £20,000 in the "early 90s", and you will now have to pay back £72,500. Keeping it simple and assuming that we're talking about 20 years, that's equivalent to an interest rate of slightly less than 7%. That might be a little more or a little less than the average mortgage rate over those years, but it's in the same ball park.

Not that bad a deal then. Hopefully Pop spent the money wisely by having as much fun as possible.

skintandscared_2

What's disgusting about it? Your dad got a loan and didn't have to make any repayments during his lifetime. Looks like a very good deal for him if you ask me. It was his house and he hasn't left anyone else to pay the debt for him - it'll be coming out of his estate. What disgusts me more is generally how much people whinge when their "inheritance" is reduced. It's not your money - anything is better than nothing, just be grateful there's something at all.

chalkie99

This sounds more like Equity Release than a loan so check the documents.

I cannot see how it is a loan without any repayments.

As for the statement

I don't think my Pop could have foreseen the value of his house doubling

I don't know why not. The house I bought in the Eighties doubled very quickly before falling back in the Nineties so it is not as if he had not experienced a boom before.

Paul_the_Painter

£20000 for 20 years compounded monthly (pretty standard back then) would be £72,550 @ 6.46%. Assuming no repayments

All in all not a bad deal.

Thread title could equally be

"Grandparents spending their money on what they wanted reduces our inheritance - Scandal"