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Equity query

My parents took out an equity release on their home some years ago and in September moved house but Aviva (who the equity is released by) put a few spanners in the works and I was just wondering if it seemed fair practise!
Basically, my parents wanted to be closer to family so they had their bungalow valued and found another bungalow closer to family! Their own bungalow was valued at £185,000 (told to accept anything above 180 by estate agent) The new bungalow was also up for £185,000!
My parents home sold for asking price of £185,000 so they then offered the full £185,000 for the new bungalow which obviously got accepted!
Everything was running along nicely and then Aviva got involved!
They sent a surveyer to the new bungalow who reported back it was only worth £175,000! This left my parents £10,000 short. To cut a long story short the other owners dropped the price to £178,000 and my parents had to find £3000 extra to give to Aviva! Aviva then also were to receive the extra £7000 my parents would make from the sale!
A bit of a pain but my parents could just about afford it and went ahead!
After about 3 weeks and quite a few searches and fees paid Aviva sent round someone to the bungalow my parents were selling! A few days later my parents got a letter saying Aviva think their property should be valued at £190,000 and basically this means Aviva need an extra £5,000 pound from somewhere!
My parents just felt like the floor had caved in and my Mom was so upset and could hardly even talk about it. Without my knowledge they pulled out of the deal as my Mom couldn't take the stress! Also they were now a few thousand down due to the fees etc!
Another long story short, I convinced them to get it all back on and I'd give them a cheque for £5000 and as they thought it unfair on me I said they could pay it me back £10 a week!
All in all it all went through and they're very happy now!
I was just wondering if this is right what Aviva did, or if this is normal?
It just seems they plucked some figures out of the air to make themselves 15 grand! It seems very strange that the new bungalow should be worth £10,000 less than asking price but theirs should be worth £5000 more!
Any comments will be thankfully received!
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Comments

  • rosie383
    rosie383 Posts: 4,981 Forumite
    I have no idea if what they did is normal or ethical practice but just wanted to say your parents are blessed to have you to help them get to where they neded to be. I'm glad it worked for them in the end with a little help.
    Father Ted: Now concentrate this time, Dougal. These
    (he points to some plastic cows on the table) are very small; those (pointing at some cows out of the window) are far away...
    :D:D:D
  • eddddy
    eddddy Posts: 17,522 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    I'm glad it's all sorted.

    I'm a confused by the numbers you quote, but it may not be as bad as you think.

    Equity release is really just like a mortgage - but you don't make any payments, so the interest just accrues (meaning each month you owe a bit more). So your parents have essentially just paid off £15k of their mortgage (and reduced the amount of interest that will accrue in future months.)

    So when the house is eventually sold, there should be a smaller lump sum to pay back to Aviva.


    But even so... the numbers don't seem to add up.

    Depending on your parents age, Aviva will normally lend up to 50% of the property's value - and then let the interest accrue.

    So let's say your parents old house was worth £190k and so they borrowed £95k. (i.e. 50%)

    The new house is only worth £175k so now they can only borrow £87.5k. (i.e. 50%)

    So they need to pay back £7.5k. (Or mabe Aviva wanted them to pay a chunk of accrued interest as well. Plus there may be fees and early repayment penalties etc.)


    The short answer is to check how much they owed before paying the £15k and how much they owed after. It may all become clear.
  • Cheers guys,
    They had £40,000 of equity about 10 years ago. They already owned their house outright so no mortgage to pay!
    Basically it won't be long until Aviva own the whole bungalow. I think at the moment Aviva would be entitled to about £100,000 if it was sold!
    I understand with them knowing that it looks like they'll end up owning the bungalow down the road and would want any difference in property prices paid off when a move occurs but my main gripe is they knocked £10,000 off what the new bungalow was up for and then added £5,000 on to the bungalow my parents were selling!
    Yet BOTH properties we're originally sold for the same price! It's only when Avivas independent surveyor got involved that they came back with a £15,000 difference between the properties!
    It's more the adding on £5,000 to my parents selling price that feels unfair!
    It's as though they've deliberately said the new place is worth less and the old place was worth more so they make £15,000 now as they know once my parents owe more than the bungalow is worth, Aviva stop making any more money!
    Basically what they are saying is if my parents had stayed where they were Aviva would have ended up with a £190,000 bungalow whereas after the move they'll now end up with a £175,000 bungalow! My parents needed to make up that £15,000 shortfall now! Yet BOTH properties we're told by estate agents to ask for £185,000!
    I just have this sneaky feeling that if the properties we're the other way round Aviva would STILL have found the £15,000 difference between the two, only the other way round!
  • ViolaLass
    ViolaLass Posts: 5,764 Forumite
    Estate agent asking prices aren't too relevant though - you can ASK for any price you like, it's what the house might actually achieve that matters.
  • That's true but she had 3 quotes from estate agents and went with the one who said the highest!
  • Can you explain what the nature of the equity release they took out with Aviva was:

    1) Was it a lifetime mortgage (where Aviva has a charge in the property but does not own any element of it), or;

    2) Was it a home reversion scheme whereby Aviva actually owns part of/all of the house and your parents would have been granted a lifetime interest in the property?

    Assuming (2) then your parents' house wasn't really theirs to sell and hence it is to be expected that Aviva get involved in the valuations.
  • Not too sure! I'd guess the 2nd! Basically unless something bad happens to my parents within the next ten years Aviva will own all of the house! My parents can never owe more than the house is worth!
    I do understand they have to have their own surveyors it just seems 15 grand difference between two houses that were valued (all be it by estate agents) to be EXACTLY the same price is taking the mick a bit!
  • Chivas69 wrote: »
    Not too sure! I'd guess the 2nd! Basically unless something bad happens to my parents within the next ten years Aviva will own all of the house! My parents can never owe more than the house is worth!
    I do understand they have to have their own surveyors it just seems 15 grand difference between two houses that were valued (all be it by estate agents) to be EXACTLY the same price is taking the mick a bit!

    by ONE estate agent (you said your parents went with the highest price for their place, who knows which price was chosen for the other place).
  • Well, assuming it is a reversion scheme, then effectively what your parents are asking Aviva to do is:

    1) sell a £190k asset they (Aviv) own for £185k (ie a loss to Aviva of £5k)

    2) buy a new asset (only worth £175k) for the sum of £185k

    So Aviva view it as they are being diddled out of £15k in total. That's why they are asking your parents to make up this money.
  • My point being it was not a £190,000 asset!
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