Equity Release Early Redemption Nightmare

jonbearwood

My mother is in the process of down sizing to pay off an equity release that her and my late father took out in early 2001 with Norwich Union/Aviva. I've just been informed that the ERC for this will be £14,000! This is over 50% of the original £26,000 loan and seems highly unethical. I understand that Aviva has since 2004 capped the ERC to 25% of the original loan. Can you advise on whether we have a case with Aviva in reducing this hefty charge and if so how best to proceed?
Thanks

dunstonh

This is over 50% of the original £26,000 loan and seems highly unethical.

Why is it unethical?

It is disclosed. It is part of the package of costs that are based on the costs of the insurer. (ignoring the actual charge for the moment and focusing on that fact that when there is a charge it is going to be high for valid reasons)

Here is the generic risk warning they publish:
A lifetime mortgage is a long term commitment – it can be expensive if you decide to repay the loan early and you may have to pay a substantial early repayment charge.

Figures are produced on the personalised version that is issued. The solicitor you use in doing this will almost certainly point out the risks involved as well as any adviser you use in this process (assuming an adviser was used and not bought direct). It is not a mortgage and not priced in the same way.

Aviva, so far, have been rejecting complaints on these. There was a recent similar complaint in the media:
http://www.thisismoney.co.uk/money/experts/article-2085234/Aviva-stung-early-redemption-charge-lifetime-mortgage.html

Here is the latest aviva document on the ERC for lifetime mortgages:
http://docs.aviva-wrap.co.uk/view-document.cgi?f=pf01753.pdf&lid=prod-lit-Lifestyle%20Lump%20Sum&lpos=pf01753.pdf

The current version does cap the cost at 25%. I dont know if they apply that retrospectively to old cases. That would be a question that Aviva would need to answer.

jonbearwood

The product in my opinion was seriously missold to my parents and I'm currently putting a claim to the FSO to this effect. Unfortunately, the IFA they used is no longer trading but the advice they received from them was shocking and was tailored to sell the product – which I’m sure they earned a hefty fee from. My father had some savings which was sufficient to pay his debt off - the sole purpose of the equity release – but nowhere in the IFA report did they discuss using this instead. Also, to take him over the minimum borrowing requirement for the product, they advised him to take out a £7,000 investment which generated very little income - certainly not enough to cover the 8.5% interest on the equity – which was eventually sold on his death for £4,000. I would have thought that Norwich Union had a duty of care towards my parents through the IFA's they engaged with.

geoffken

Why should Aviva have to compensate for your father taking out a product.
IF he did not understand it WHY did he sign it?
This MUST have been one of the biggest decisions of his financial life?
What did he spend the money on a world cruise perhaps?

margaretclare

I can't understand why this should have been mis-sold. We did equity release in 2003 and all along the line we had it all spelled out to us in words of one syllable. The IFA we had searched the market and got the best deal for us. Because the interest rate was pegged to the Bank Rate which has been historically so low for so long, the total hasn't rolled up to the extent we were warned it might do (attempts at scaremongering and not factual information).

I've seen a few of these type of complaints the OP is making. There seems to be an assumption that older people are gullible, easily-persuaded and can have the wool pulled over our eyes. After a lifetime of living in this wicked world most of us can see a scam artist a mile off. And no, WE did not need the money for a world cruise. We wanted to pay off the existing mortgage - we saw no point in going on paying a repayment mortgage to be paid off when we're 83 just in time to die and leave it to somebody else!!

We would have downsized instead of equity release except that there's not much to which you can downsize from a 2-bedroom bungalow.

goodanna

I would have thought that Norwich Union had a duty of care towards my parents through the IFA's they engaged with.

jonbearwood

Yes, it was a big decision and hence the reason why he discussed it with an IFA. My argument is that the IFA wasn't independent or impartial (I understand the reason they went bankrupt was compensation payments for misselling!). And no the money was not spent on a cruise.

magpiecottage

jonbearwood wrote: »

The product in my opinion was seriously missold to my parents and I'm currently putting a claim to the FSO to this effect.

The Financial Ombudsman Service will not involve itself in a complaint unless and until a firm has first had a chance to resolve the complaint.

Unfortunately, the IFA they used is no longer trading but the advice they received from them was shocking and was tailored to sell the product

Whether they are still trading or not it is the IFA, not Aviva that must answer a complaint about the advice.

which I’m sure they earned a hefty fee from.

That is not relevant. The issue is whether the advice was suitable.

My father had some savings which was sufficient to pay his debt off - the sole purpose of the equity release – but nowhere in the IFA report did they discuss using this instead.

Can you prove this was the case. If not, your complaint will fall down.

Also, to take him over the minimum borrowing requirement for the product, they advised him to take out a £7,000 investment which generated very little income - certainly not enough to cover the 8.5% interest on the equity – which was eventually sold on his death for £4,000.

Borrowing to invest MAY be grounds for complaint but with equity release it is not always clear cut. If somebody is looking for income from the equity in their home this can be the only practicable way, depending on the market for equity release at the time.

I would have thought that Norwich Union had a duty of care towards my parents through the IFA's they engaged with.

Then you would have thought wrong. An IFA acts for his or her client and takes responsibility for the suitability of the product. The provider is only responsible for satisfying itself that it can lawfully provide the product applied for and, having done so, discharging its contractual obligations.

The situation would be different if the adviser was a representative of the provider - in which case it would be liable for the advice given.

A complaint about the investment (based on the fact that it was funded by borrowing) MIGHT succeed.

A complaint about the loan itself would fall outside FOS jurisdiction unless the adviser subscribed to the Mortgage Code when it was taken out and at some time was DIRECTLY authorised by FIMBRA, the Personal Investment Authority or the Financial Services Authority.

magpiecottage

jonbearwood wrote: »

I understand the reason they went bankrupt was compensation payments for misselling!

If they are bankrupt then you will need to approach the Financial Services Compensation Scheme. It MAY award redress for the investment but not for the mortgage.

dunstonh

The product in my opinion was seriously missold to my parents and I'm currently putting a claim to the FSO to this effect. Unfortunately, the IFA they used is no longer trading

You cannot complain to the FOS then. You need to complain to the FSCS.

I would have thought that Norwich Union had a duty of care towards my parents through the IFA's they engaged with.

None whatsoever. An application just turns up in the post and they process as it is completed and signed by the applicant. The liability lies with the adviser.

There seems little wrong in what you have said about equity release. Although why would someone with sufficient savings decide to take out equity release?

The investment sounds suspect and there is possibly some scope there as you dont do equity release and then invest an amount of it.

es, it was a big decision and hence the reason why he discussed it with an IFA. My argument is that the IFA wasn't independent or impartial (I understand the reason they went bankrupt was compensation payments for misselling!). And no the money was not spent on a cruise.

IFAs are independent and impartial. Or they are not IFAs. The fee is irrelevant as that is what is agreed at the start. Like any profession, if you dont like the fee then you try somewhere else. Also, like any profession you get the odd bad apple. However, you need to stay focused on the issues and not get embroiled in irrelevant or pointless statements if you want to make a complaint.

What was the money spent on if there were sufficient savings that existed in the first place that didnt require equity release?

[Deleted User]

jonbearwood wrote: »

My mother is in the process of down sizing to pay off an equity release that her and my late father took out in early 2001 with Norwich Union/Aviva. I've just been informed that the ERC for this will be £14,000! This is over 50% of the original £26,000 loan and seems highly unethical. I understand that Aviva has since 2004 capped the ERC to 25% of the original loan. Can you advise on whether we have a case with Aviva in reducing this hefty charge and if so how best to proceed?
Thanks

Hi jonbearwood,

Sorry to see your post. If you want to send me some details I can look into this for you.

If you could please email me at [EMAIL="rachel.walker@aviva.co.uk"]rachel.walker@aviva.co.uk[/EMAIL] with the following:

• The full name shown on the policy
• Date of birth for the policy holder
• Full postal address on the policy
• Policy reference number

Once I have received this information I will arrange for your enquiry to be investigated.

Kind regards

Rachel