Interest only Mortgage

miss_spooky

Hi,

I am writing on behalf of my parents. They are 68 (mum) & 74 (dad). 15 years they moved away, had the cash to purchase their house outright but a broker told them they would be better to get a small mortgage (40K) so they went ahead with his recommendation - both parents were out of work at the time and only had my dad's early retirement pension to cover costs. This was a repayment mtg.

After a couple of years (both had found jobs & were then retired) they got into arrears with the mgt - so they went back to broker who advised them to get an interest only mtg (no savings at all) with the view to do an equity release in 10 years - (Now).

The value of properties have dropped where they are & they haven't got the equity in the house to go through with the equity release. At their ages they will not get another mgt.

What are their options & is there any ground for mis sold - if so who is at fault? Broker or Mgt company?

Many thanks

ed67812

miss_spooky wrote: »

Hi,

had the cash to purchase their house outright but a broker told them they would be better to get a small mortgage

Why did they use a broker if they had the cash to purchase outright? Wouldn't they have decided to get a mortgage and then gone to a broker?


What was the logic for getting a mortgage? How did they get into arrears if they had left over capital (given that they had the funds to purchase outright)?

ViolaLass

What did they do with the £40k?

miss_spooky

Financial adviser - not broker.

They had capital from the first house they sold. Paid 100K in cash & took out a mgt for 40k for the rest based on what they were advised - my mum had just started working in a state agents & I think it was one of their financial advisers who told them to do this.

They bought a caravan which was 20k & paid site fees etc for a year - lost that but that's a while other story where they were robbed... Rest went on a holiday for them & they rented for a couple of months whilst they were waiting for the new house to complete.

They got into arrears and had to remortgage - this time only getting an interest free (bridging loan are they called)? on the assumption that at the end of the term of the mgt - there would be equity to be released to clear the balance of the mgt. When they last had the house valued, there wasn't enough equity for them to do this - I think they said there needs to be over 1/3 of the outstanding amount - so if mgt is 40k then equity needs to be at least 80k in equity. I'll confirm that when I speak with them later.

I'm trying to get them to start looking at their options as they are both to worried about what may or may not happen.

Thanks

Lemonsqueezer78

What makes you think they were mis-sold? Forgive me, but from what you've said so far, it doesn't even sound like you know precisely what actually went on, so I'm fairly certain you are not going to be able to provide clear/concise or accurate enough information for anyone on this board to say whether or not there is a legitimate claim anywhere in there....

I'm sorry but on the surface of it, it really just sounds like some poor decisions were made by your parents, unless you are really suggesting they did not know what a repayment mortgage was - or what the subsequent interest only mortgage was?

They took out a mortgage despite having low incomes because they saw this as a way of freeing up some cash... which they then spent...

Did they really do that as a result of poor advice or mis-selling? Because to me, those aren't complicated financial products, even for people with the most basic handle on money...

miss_spooky

They had the money to pay for the house outright.

They were advised to take out a mgt (repayment over 10 yrs).

They got into arrears (retired) and were then told they could only have an interest only mgt (due to ages) - with an equity release at the end of the 10 years.

House prices have dropped (I know no guarantee) but there isn't enough equity in the house to do an equity release atm.

Just looking for advise.

If you think they knew what they were doing when they sort advise, then fine.

I don't want to see them lose their house because of some bad advise - knowing their ages, lack of income, both on pensions and retired.

jackieblack

How much is the house worth now?

Lemonsqueezer78

miss_spooky wrote: »

They had the money to pay for the house outright.

They were advised to take out a mgt (repayment over 10 yrs).

They got into arrears (retired) and were then told they could only have an interest only mgt (due to ages) - with an equity release at the end of the 10 years.

House prices have dropped (I know no guarantee) but there isn't enough equity in the house to do an equity release atm.

Just looking for advise.

If you think they knew what they were doing when they sort advise, then fine.

I don't want to see them lose their house because of some bad advise - knowing their ages, lack of income, both on pensions and retired.

When you say they were "advised" to take out a mortgage - what do you mean exactly? Because there is a difference between a financial advisor suggesting they SHOULD do this, versus telling their clients (your parents) that they have the OPTION to do this, if for example, your parents were asking if there was a way for them to retain some cash - for example, for rent - or a caravan(!). Suggesting they could look at taking a small mortgage if they needed to keep some of their money free may well have been a perfectly appropriate option to suggest, depending on what your parents were asking for at the time. And it would ultimately have been down to your parents to accept that or not. Like I said, a repayment mortgage is not exactly a complex financial product to understand and its unlikely the FA would have been holding a gun to their heads.

Similarly, suggesting a mortgage product with a lower monthly payment to someone in arrears and struggling with their current payments is also a perfectly acceptable option. Again, unless you are saying that they were unclear as to what a IO mortgage was - or they were not made aware they would need to plan for repaying at some point, then I don't see anything all that dodgy here. And to be fair, pretty much all lenders have gone to great lengths in the last 10 years or so, to remind borrowers regularly of their obligation to ensure they have suitable plans to repay. And your parents do/did have all the tools at their disposal to see - over the last 10 years - what the housing market was doing.

You do always have the option to gather all the paperwork you can find together - and maybe have a solicitor specialising in this kind of thing to poor over it to see if they can find any evidence of something awry... but I think that would be an expensive waste of time. And unless I'm missing something material here, I think you would have a hard time convincing someone your parents were misled in some way, given these were pretty straightforward transactions and products.

Don't get me wrong, I sympathise with you and your parents. All I'm saying is that you do need to be open to the possibility that this was just a case of poor choices on your parents part and nothing more sinister than that. As difficult as that may be.

AnotherJoe

What specifically do you think they were missold on?
The initial mortage? So given they took that money and lost it, you cant say that was bad advice unless the adviser is meant to act like their mum and dad.

The IO mortgage? They were in arrears and therefore presumably unable to afford the original repayment. Again, why is that the fault of a broker?

They'd have been too young for equity release then, so that wasnt an option. Again not the fault of the broker.

Seems from what you've written its a mostly poor decisions on their part starting with chucking money away on a caravan and holidays.

Its not always misselling just because stuff goes wrong.

Lemonsqueezer78

Edited - sorry, let me ask this another way, how much is the house currently worth?

Firsttimebuyerhelp

Can your parents not sell the house, repay the mortgage lender then buy somewhere smaller and cheaper outright?