Equity Release - House in Danger of Going into Negative Equity

amandajc

My parents have just applied to transfer an old Northern Rock Equity Release mortgage (now Papilio) but have been refused as the house wasn't valued at much more than it was when the original mortgage was taken (over 15 years ago). They currently owe about 60% of the value of the house and this is going up by around £11,000 per year.

As Papilio don't seem to be members of the Equity Release Council can anyone help with information on what the situation would be if the house goes into negative equity.

Thanks in advance

TrickyDicky101

Have your parents got the original mortgage documents to hand that should set out what happens should the property fall into negative equity?

amandajc

Thanks. I'll check that with them. Hopefully they still have the documentation but I've never seen any or known any details of the arrangement as it was made so long ago. They're pretty shocked and upset at the moment so I don't even really want to put the idea in their heads but we do need to get to the bottom of it.

Thrugelmir

amandajc wrote: »

They currently owe about 60% of the value of the house and this is going up by around £11,000 per year.

After 15 years there's still sizable a chunk of equity left. How many years before the property is in negative equity and how old will your parents be?

amandajc

The house was valued at £240,000 over 15 years ago (possibly as many as 18) when the equity release mortgage was arranged. The valuation today has come back at £200,000 (£250,000 if some repairs are completed). They owe £150,000 and are both 80.

Unfortunately they also have credit card debt of £16,000 which has just come to light and which prompted me to look into the mortgage and encourage them to apply for a transfer.

getmore4less

Do your own market valuation to get a realistic selling price.
if it is going up 11k a years that's around 7%.

What were you trying to transfer too?

With their age finding alternative lending won't be easy.

silvercar

Was Northern Rock members of the Equity Release Council?

What happens if a regulated company goes into liquidation and we have a lifetime mortgage with them?
All equity release providers are regulated by the Financial Conduct Authority (FCA): in the event of a company becoming insolvent the FCA would ensure that another company assumed responsibility for the failed company’s customers. There should be no change to the terms and conditions of your original contract and your plan can continue as normal.

If so, then your terms and conditions would cover the no negative equity guarantee.

I also found this statement googling around:

Despite the fact Northern Rock suffered these horrendous consequences of the Great Recession of 2008-2011, equity release customers remained safe and secure. JP Morgan stepped in to purchase the lifetime mortgage book and whilst there has been an inconvenience and your lifetime policy is now administered by Papilio UK Equity Release, there have been no significant consequences.

Thrugelmir

amandajc wrote: »

The house was valued at £240,000 over 15 years ago (possibly as many as 18) when the equity release mortgage was arranged. The valuation today has come back at £200,000 (£250,000 if some repairs are completed). They owe £150,000 and are both 80.

Unfortunately they also have credit card debt of £16,000 which has just come to light and which prompted me to look into the mortgage and encourage them to apply for a transfer.

With £16k of unsecured debt there'll be concerns over how they are managing their money. One assumes that this has built over time and not just suddenly appeared. May require a more tactful approach to get to the bottom of their overall finances. Also seeking advice regarding the unsecured debt from the National Debt Help Line which is a free UK Gov advisory service.

amandajc

Thanks all. We will take further advice and maybe get an independent valuation on the house although that won't really move things on further as they have no intention of selling up. The current interest rate on the Papilio mortgage is indeed 7.9% but as the equity release advisor has said there is nothing further he can do for my parents as regerds transferring to a cheaper option I think they are probably stuck with it.

Paying down the credit cards has now to be a priority so I'll be helping them work this out (thanks Thrugelmir for the reference - I'll follow that up). As these debts are in Mum's name if she dies first could the credit card companies force sale of the house to satisfy the debt? The rest going to Papilio and leaving Dad homeless?

mrsnobody

A jointly held equity release loan is only due for repayment to the lender once both parties have passed away, or moved into permanent Long Term Care, so if your mum was to pass away first, the equity release should continue in your dad's sole name. I wouldn't have thought that an unsecured creditor could force the sale of a jointly owned property to repay one of the owner's debts, but perhaps someone with more knowledge in this area could confirm?

I know this does not solve the immediate issues you are facing, but might give some reassurance

A qualified equity release adviser should be able to help you find out if the Papilio (NR) plan contains a no negative equity guarantee.