Pension Mortgage

SamboJambo

This is going to sound ridiculous and is rather long-winded but please bear with me...
My husband took out a pension mortgage 24 year ago for just shy of £33k. We received a letter on Saturday telling us that the mortgage term comes to an end next October, at which time we have to pay the balance of £33k. This has come as a massive shock as he had no idea that when he signed up to the 'pension mortgage' this meant it was an interest only mortgage. I have looked back through the mortgage paperwork (We have only been together for 10 years so I am not on the mortgage and have never felt the need to look at the documents) and although it does mention interest (as any mortgage would) it is not obvious that this was the case.
I have looked into these types of mortgage now and it seems that there are quite a lot of complaints about these being sold in the late 80's and early 90's without people being fully aware of how they work.
Again on looking into how they work it says that the mortgage lenders had the idea that you would either sell your house to downsize as you had hit retirement age or you would use a lump sum from your pension to pay off the mortgage. Neither of these is possible for us as we have a 5 year old and 2 year old and are getting to the point where we actually need a bigger house as our 2 year olds room is just a nursery/study sized room (the plan was to move to a bigger house using our small amount of savings plus the equity from this house once the mortgage had been paid). As for using the pension fund, my husband cannot withdraw anything from this pension fund until he is 55, he will be 51 when the mortgage term ends.
Taking all of this into account I do not believe the bank sold this mortgage to my husband responsibly.... and I haven't got a clue what to do now?
As I said, we have a VERY small amount of savings and a few assets that we can sell but no where near £33k's worth. I am not sure we would get another mortgage (nor do we really want another) as my husband is a SAHD to our children and I only earn £18k per year.
Can anybody offer any advice? (or a winning lottery ticket?)

YHM

If you are planning on moving, why don't you just pay the mortgage off from your sale proceeds?

You could then raise a nominal mortgage, if needed, for your onward purchase

I would expect you would still be able to get a decent mortgage on your salary....I am assuming as well your income is topped up by tax credits, child benefit etc?

amnblog

Interest only mortgages backed by tax free cash pension were common in the early '90's and looked a good deal given that funds we growing at close to 10% and higher rate tax was 60%.

I suspect the Bank will suggest it was down to your husband to invest in a pension. I would also guess that they have written to him more than once in recent years reminding him that his capital will be outstanding at the end of the mortgage term.

They could also point him to 23 annual mortgage statements.

They may, as a sign of goodwill, extend the term for a while.

dunstonh

Taking all of this into account I do not believe the bank sold this mortgage to my husband responsibly.... and I haven't got a clue what to do now?

Mortgages were not regulated until October 2004. This pre-dates that.

Also, the pension and the mortgage are two separate things. The FOS is not generally entertaining complaints about interest-only mortgages sold prior to the credit crunch as it was quite normal before then and no regulatory reason for them not to be used.

Pension mortgages involved one party providing the pension and another party providing the mortgage. Pension mortgages were something that were common around 1988-1993 when MIRAS and high tax relief was available. Once MIRAS was abolished and the tax relief on pensions fell, they became less popular.

The concept still exists today and can be viable but you would not usually see any direct linking.

People that had a pension mortgage were encouraged to alternative methods when they next saw their financial adviser or mortgage broker when getting a new deal. If they didn't seek advice again, then there would be no-one to tell them that the old tax benefits no longer exist and they should change the method.

This has come as a massive shock as he had no idea that when he signed up to the 'pension mortgage' this meant it was an interest only mortgage.

This is always a hard one for other people to believe. For 24 years, he has had an annual statement showing the amount of the mortgage. The mortgage staying the same balance every month and never going down. The statements showing risk warnings in bold about needing to have the money to pay off the mortgage when it ends etc.

So, when you say it was a shock, was it a shock because he never read the documentation supplied?
Has your husband ever taken heed of those warnings and checked the progress of his pension and how it would repay the mortgage or not?

As for using the pension fund, my husband cannot withdraw anything from this pension fund until he is 55, he will be 51 when the mortgage term ends.

In 2006, Labour increased the minimum pension age from 50 to 55. This change happened 13 years after your husband bought it. You cannot complain about changes that happen in future years that were not possible to predict.

However, you just let the lender know that its linked to a pension and the pension cannot be accessed until 55 and most lenders will extend the mortgage if you have been paying it.

Is your husband still paying into the pension?
Did he increase it periodically to take account of inflation?
Is it on track to be able to clear the mortgage at 55 (as it is now)?

SamboJambo

Amst wrote: »

Another one for the 'I-didn't-read-my-terms-and-conditions-when-buying-the-mortgage-and-despite-benefiting-from-ridiculously-low-interest-rates-and-lots-of-additional-disposable-income-I-have-definitely-been-missold-(give-me-some-money!)'

You say there is a mention of paying interest on the current mortgage in the paperwork. Please keep reading until it explains about the repayment vehicle he will have opted for (clue is in the name of the mortgage taken out) and show it to your husband before you pay a cowboy claims company to 'investigate' this for you.

This is exactly the kind of message I dont need. I am asking for help not belittling responses!
At no point did I ask for money... We have no debts other than this mortgage and we claim no benefits (and never have) apart form the child benefit that pretty much anybody with children is entitled to. We have always worked hard to pay our own way.
We are also NOT morons as you have implied. I am the assistant to the finance director at the company I work for, it may not be pension linked but it gives me financial knowledge and I know when a company is being underhanded about the terms of a contract.
You clearly are an expert so please enlighten me as to how the name 'Pension Mortgage' explains that it is an interest only mortgage?
A mortgage advisors job is to look at a persons circumstances and advise the best mortgage for them and fully explain how the mortgage works, is it not?... You cannot honestly tell me that this is what the advisor did in this case.
I really hope that if you are ever in a situation where you need advice somebody treats you the same way as you have done me.

SamboJambo

amnblog wrote: »

Interest only mortgages backed by tax free cash pension were common in the early '90's and looked a good deal given that funds we growing at close to 10% and higher rate tax was 60%.

I suspect the Bank will suggest it was down to your husband to invest in a pension. I would also guess that they have written to him more than once in recent years reminding him that his capital will be outstanding at the end of the mortgage term.

They could also point him to 23 annual mortgage statements.

They may, as a sign of goodwill, extend the term for a while.

This is the first time they have written to him. I have looked at the mortgage statements and they dont make it clear at all. The pension is linked to the mortgage and is doube the amount he originally borrowed... but is useless if they wont let him withdraw it.

clairebeth

Hi, I think it might be worthwhile you seeing a financial advisor. The lender may indeed extend the period until he's 55 and can access the pension to pay it off, but then he's stuck with not much in his pension pot at the age of 55, so they may be able to advise you on both aspects.

My other question is...why AREN'T you claiming tax credits etc? Surely you are entitled to that on a family income of £18k? Don't shoot yourself in the foot. Everyone needs an extra hand now and then, and having young children and someone staying off work to look after them is hard work!

We are a family of four in a two bed flat. Don't automatically think that your kids need their own room or a big room. Billions of families around the world make do with what they have, and I would think twice about going into further debt just for the sake of a bigger bedroom.

Well done on having so little debt and being almost mortgage free with young children. Just think, if you get the right advice, claim the benefits you are entitled to (I'm not guaranteeing that you are entitled, but I'm assuming), and get the lender to extend your term, you could be entirely debt free before your eldest starts high school! Something to think about.

All the best!

Thrugelmir

Your frustration is understandable.Obviously came as a complete surprise and shock. What's happened is in the past. You need to be pragmatic and move forward from here. As has been suggested already. First port of call is your existing lender. Switch the mortgage onto a repayment basis and extend the term. Given the circumstances there's no reason why they wouldn't assist you.