Advice wanted because I consider this is theft!

Ian_J_Alexander

Very briefly the situation/facts are as follows:
- 2001 my farther declared himself bankrupt due to some unfortunate business decisions
- 2002 to clear off debts parents sold the family home
- 2002 with the remaining equity from the sale of their home they moved to a smaller property with a small mortgage of £10k
- 2003 parents wanted to release some equity from their property and applied to the Norwich Union for an Equity Release Loan
- The loan agreed was for £60,000 against their property value of £250,000 (with a mortgage of £10,000)
- 15 years on my mother (now 84) is expressing an interest to move to a smaller more manageable home (father died 6 years ago)
- contacted Norwich Union to find out loan situation. The original £60,000 loan against a property value of £250,000 now stands at £174,077 (interest has been charged at £34.76p PER DAY).
- If my mother decided to sell her property Norwich Union will apply an early settlement charge of £46,280. THIS MEANS THE ORIGINAL LOAN OF £60K NOW STANDS AT £220,257!!
- SURELY THIS IS A CLASSIC CASE OF GROSS MISS SELLING AND OUTRIGHT THEFT!
Advice on how to address this corrupt situation would be appreciated.

Thrugelmir

Ian_J_Alexander wrote: »

- 2003 parents wanted to release some equity from their property and applied to the Norwich Union for an Equity Release Loan

Where's the theft?

Your parents presumably spent the £60k..........

davidmcn

You'll need to explain why you consider it misselling. I'm pretty sure that in that era Norwich Union insisted on borrowers taking independent legal advice, so I doubt your mother can claim that she wasn't told what she was signing up to. Whether it was the best course of action for her is another question, but we don't know what sort of advice she got.

TrickyDicky101

Do you have the agreement documentation that your parents would have signed back in 2003 - what does it say about early repayment?

How did your parents acquire the equity loan - did they go direct to NU or through an IFA? I believe Aviva don't sell equity release products directly now but I don't know what they did back then.

maisie_cat

Did your parents pay any interest or capital repayments on the loan?
How much is the property worth now?
At least £50k will be interest otherwise with the balance based on a proportion of the increase in value plus the early settlement fee. A bankrupt will be a high risk borrower, so the return required to cover that risk from a lender's perspective will be high

ACG

The £34 interest a day is presumably now. Not 15 years ago when the balance was only £60k.

The interest becomes compounded so the debt grows faster and faster.

If it is what was agreed to, then it is not theft.
Miss sold can only be miss sold if:
1) Advice was given and
2) There was no need for it, your parents was not aware of it or it was not wanted.

Clearly it was wanted, clearly they were aware of it and there was presumably a need for it. So unless you can evidence that it was not explained properly, you are going to struggle. And by evidence, they are going to be looking at paperwork - not hear say.

So I would look through the paperwork from the time and see if it was explained about how the interest would be charged (ie compounded).

If it is, I think you are in a difficult position.

Bare in mind, that £60k has not received a payment for 15 years and neither has the interest. So the only direction the balance was going to go was up.

elsien

Surely they've had annual statements indicating the interest charges and the current state of the loan? I can't believe they've had no updates at all since the loan was taken out?

BoGoF

Sorry, no theft to see here. Your parents borrowed £60,000 which they didnt have to pay back until house sold. The interest rate would appear to be around 8% apr over the 15 years.

Brock_and_Roll

OK here goes with my fag packet calculation.


Excluding the early payment charge, the interest rate on £60k over 15 years equates to 7.35% - which seems entirely possible - I was paying a similar rate on a bridging loan with GE Capital at the time and as the OP has explained, his father was a high risk borrower.


The early repayment charge of £46k is basically what us bankers call broken funding costs - the amount the bank in theory would have to pay to the money markets to "break" the interest rate swap agreement that they took out at the time. As of course interest rates have fallen massively, the money market lenders to the bank could not achieve anywhere near the same return if they receive the money back early - hence the charge.


I suspect it is highly unlikely that the bank entered into a 15 year +fixed funding arrangements so we are talking theoretical breakage costs here......so might be a basis for some pleading here even if technically on the hook for this.


There is overall a good argument here that this mortgage has been useful - it has released cash to fund the retirement whilst allowing them to carry on living in their home.

Amst

Someone's upset about how much smaller his inheritance pot is :wave:

dunstonh

Excluding the early payment charge, the interest rate on £60k over 15 years equates to 7.35% - which seems entirely possible - I was paying a similar rate on a bridging loan with GE Capital at the time and as the OP has explained, his father was a high risk borrower.

That makes sense as the Aviva equity release rate has been around 6-7% since the credit crunch and was more than that prior to the credit crunch. So, your workings match the interest rate ballpark.

As a rule of thumb, you expect equity release debts to double every 10 years. £60k to £120k in 10 years. 120k to 240k in 20 years.

- SURELY THIS IS A CLASSIC CASE OF GROSS MISS SELLING AND OUTRIGHT THEFT!

Not seeing it I'm afraid. As you mention it was a 2003 sale, we know the standards and requirements that were in place at that time. This was just before the 2004 rule changes and firms already knew what the requirements were. Many firms were already working to the new requirements. Whilst there were issues with equity release in the 80s and 90s, by the early 2000s, things were much improved. Typically, you would involve a solicitor and a financial adviser or mortgage adviser by then. The provider would have all the risks listed, as you would expect. The solicitor would re-emphasise the risks and issues to ensure that the person went into it with their eyes open. The idea being that if the borrowers have seen an adviser and a solicitor, it really makes it hard for them to be missold. Never impossible but certainly reduces the chances.

The figures are where you expect them. Everything seems in order.

Nowadays, the only real complaints you tend to see are from the children finding out that they are not getting the inheritance they thought they were.