Next Mis-selling scandal looms

capital0ne

The next mis-selling scandal is live and running, and its called Equity Release.
Article in the Telegraph last week:

The 'dangers' of equity release: 'My £65,000 loan is costing me £12,000 a year in interest'

Shirley Rosenthal and her husband, Stanley, took out an equity release mortgage with Hodge Lifetime, then known as Julian Hodge Bank, in April 2004 on their property in Buckhurst Hill, Essex.

The couple released £65,000 from their home to pay for new windows, carpets and general home improvements and were charged a fixed interest rate of 7.15pc. This was negotiated by Mr Rosenthal, as he looked after the family finances.

Following his death earlier this year, the true cost of the plan became apparent to Mrs Rosenthal. The 79-year-old has been charged £12,261 in interest in the past year alone, a figure that will only increase in future years thanks to the rolled up interest charged. Mrs Rosenthal now owes £178,210 to Hodge Lifetime on her £400,000 property.

“When my husband died we started going through all of his papers and my daughter realised that we owe nearly half the value of our flat,” Mrs Rosenthal said. “We were horrified to see how much all the interest has mounted up.”

https://www.telegraph.co.uk/personal-banking/mortgages/dangers-equity-release-65000-loan-costing-12000-year-interest/?li_source=LI&li_medium=li-recommendation-widget
(apologies paywall link)
The point here is that people just do not understand interest, especially compound interest, no matter how it's explained

Trust me, in 20 yrs time or sooner it will be a huge mis-selling scandal with loads of companies piling in to help (after their cut of the compensation).

And some of the TV adverts extolling the virtues of equity release make the salesman sound so jolly what could possibly go wrong.

So kids, if your parents take our equity release, there will be NO inheritance to come to you. Just as long as you know that it's fine.
Sleep tight - it will all be okay.

dunstonh

The next mis-selling scandal is live and running, and its called Equity Release.

Strange as there is nothing in the complaints stats or FCA data that suggests that is the case.

The article has found one case where a spouse didnt realise what the other spouse did. Despite legal advice being given and documentation showing all the details. And no wrongdoing was identified.

So, how does that turn into a mis-selling scandal?

Edi81

Equity release isn’t all bad. What’s to bet that the children are realising that their inheritance isn’t going to be as big as they thought......

dividendhero

IMHO If they're paying the interest on schedule, then there should be no roll-up

Am I missing something?

dunstonh

dividendhero wrote: »

IMHO If they're paying the interest on schedule, then there should be no roll-up

Am I missing something?

Equity release is usually no monthly payments with roll up. There are limits on how much equity can be eaten up.

Malthusian

capital0ne wrote: »

So kids, if your parents take our equity release, there will be NO inheritance to come to you.

Just as long as you know that it's fine.

And if you don't know it's also fine, as there is no such thing as an inheritance if the person you're inheriting from is still alive, and children have no right to control how their parents spend their own money.

Is someone relying on an inheritance for their retirement plans? It's OK, you can tell us.

Equity release has been around in its current, highly regulated form for nearly 30 years (since the Equity Release Council was formed in 1991). There will be no misselling scandal, because a) it's a niche product which not many people take out b) anyone who does take it out is given risk warnings up the wazoo to make sure that if the children complain that their senile old pa didn't understand that you have to pay interest on loans, the complaint will be rejected out of hand. This has been the case for decades.

My £65,000 loan is costing me £12,000 a year in interest

It isn't a £65,000 loan though, is it. It used to be a £65,000 loan, in the present tense it's a £178,000 loan. Compound interest is not a scandal, it's maths.

Keep_pedalling

Mr & Mrs R needed money ER firm provide said money at an agreed rate, so where exactly is the miss-selling.

Most people complaining about this are those, expecting their asset rich cash poor parents to live like paupers so they can splash the cash from their unearned inheritance.

bostonerimus

Equity release is either a useful tool for retirees or usury by the leader as it imposes high interest rates on desperate people....it's a matter of perspective.

In my opinion it should be avoided if at all possible as it's expensive and eats into the value of your estate. These "mis-selling" issues often come down to "mis-understanding" and I think both the seller and the buyer are culpable......The seller for making things more complicated than necessary and the buyer for being ill educated and not doing due diligence before buying.

In this case using equity release for home improvements and letting the interest roll up was stupid.

Keep_pedalling

Maybe a better title would be.

Next miss-buying scandal looms.

Edi81

The article doesn’t say paid it says charged.

Interest is being added to the loan but not being cash settled which is why the loan is increasing.

Malthusian

bostonerimus wrote: »

Equity release is either a useful tool for retirees or usury by the leader as it imposes high interest rates on desperate people....it's a matter of perspective.

No-one who takes out equity release is desperate. Wonga borrowers are desperate, equity release borrowers just want to get some money out of their house and still live in it.

In my opinion it should be avoided if at all possible as it's expensive and eats into the value of your estate.

Agreed, but not everyone sees the latter as a priority.