Interest only mortgage rolled on without resolution

Rainbow80

This is a complicated one but anyone with similar experiences?

My dad (72) was sold an interest only mortgage on the house he owned with my mum in 2011, for £108k. It ended in 2021 and since then he’s just made the payment every month by standing order. They’ve got in touch a few times to ask how he proposes to settle the balance and for a long time he pretty much ignored them. He’s got some physical and mental health issues and was overwhelmed, essentially.

Last year they called and were more assertive about him needing to settle the balance and he agreed to speak to a broker they referred him to about equity release to pay the balance. The house is in a very poor state of repair and extremely cluttered so when the surveyor came they said he couldn’t have an ER without doing some essential works (new boiler, guttering, roof works).  We wrote to Birmingham Midshires and said give us 5 months and we will do the works and put the house on the market.

For a few reasons he’s not managed to get the works done and I think BM are gearing up to seek possession. At 72 on a state pension he won’t be able to service the interest on an equity release anyway, he was quoted about £600 a month.

I am interested in whether BM have a strong case to seek possession, given that they seem to have just let the situation drift for 4 years - every month he’s made the payment so isnt there a de facto contract of sorts? Ideally he wants to stay in the house and just have a lifetime mortgage, maybe with an order to settle the balance when he dies? The whole thing is so sketchy and BM seem to send him standard template letters about being in arrears - which he isn’t?

Another complicating factor is that while he and my mum divorced in 1998, she is still on the deeds and technically joint owner. She’s long since remarried but legally is in the picture.

Congratulations and thankyou for reading this far! Any pearls of wisdom very gratefully received

MWT

Oh dear, so much to pick through and ultimately I fear, not helpful sadly.

Not necessarily in the same order, but here goes...

Rainbow80 said:

Another complicating factor is that while he and my mum divorced in 1998, she is still on the deeds and technically joint owner. She’s long since remarried but legally is in the picture.

If she is on the deeds and not resident in the house he will not be able to get a Lifetime Mortgage product (equity release), do you think she will cooperate with a transfer of equity so he is the sole owner?

Rainbow80 said:

For a few reasons he’s not managed to get the works done and I think BM are gearing up to seek possession. At 72 on a state pension he won’t be able to service the interest on an equity release anyway, he was quoted about £600 a month....

...Ideally he wants to stay in the house and just have a lifetime mortgage, maybe with an order to settle the balance when he dies?

There is no need for him to pay any interest with a Lifetime Mortgage product, the interest can simply roll-up and yes it is normal for it to only become due to be paid once he dies or goes into long-term residential care.

Rainbow80 said:

I am interested in whether BM have a strong case to seek possession, given that they seem to have just let the situation drift for 4 years - every month he’s made the payment so isnt there a de facto contract of sorts? ...

...The whole thing is so sketchy and BM seem to send him standard template letters about being in arrears - which he isn’t?

Yes he is in arrears, to the tune of £108k which he has failed to repay as per the terms of his agreement.

There is no 'de facto' contract and they have by your account continued to remind him of that many times since he defaulted on his loan.

Rainbow80 said:

Last year they called and were more assertive about him needing to settle the balance and he agreed to speak to a broker they referred him to about equity release to pay the balance. The house is in a very poor state of repair and extremely cluttered so when the surveyor came they said he couldn’t have an ER without doing some essential works (new boiler, guttering, roof works).  We wrote to Birmingham Midshires and said give us 5 months and we will do the works and put the house on the market.

For a few reasons he’s not managed to get the works done and I think BM are gearing up to seek possession. At 72 on a state pension he won’t be able to service the interest on an equity release anyway, he was quoted about £600 a month.

You said the 'We' wrote to BM, then 'he's' not managed to get the work done.

I suspect that you are going to have to help him manage his way through the process as by your account he is not really able to cope with this on his own, and it is going to be important to get the work done as this sort of requirement is very normal for an equity release product.

The lenders case is strong and clear, but they will not want to repossess a property that is difficult to sell, so as long as you take some measure of control and agree a timeline that you can help him achieve it is likely that they will give you more time, but make no mistake, they will probably continue to prepare for repossession and all of the costs they incur when doing that will be added to the final settlement figure on the mortgage.

You have not mentioned the current value of the property, but hopefully it is high enough to release the total amount he will need, and of course there will be advice fees on the Lifetime Mortgage unless he is using one of the few advisors like StepChange, who do not charge an advice fee.

ACG

I dont want to sound brutal but I am just going to be direct as there is a lot to get through:

1) He may not be in arrears, but he should have cleared the balance 4 years ago. So arguably is in arrears in that they were owed £108k 4 years ago. 

2) i dont think you can argue there is a new contract as they have been asking him for the money. They could also argue with covid etc, they were being a nice lender. 

3) You say you asked for 5 months and did not get anything done in that time. Is there anything stopping you/your dad now? If there is, then ultimately you need to find a way forward or the one thing you dont want to happen will happen. 

4) Equity release does not need servicing. The debt will just roll up and will never go above the value of the property. 

Ultimately BM have been quite relaxed. Your now coming to the end of the line and their wording will get harder until you either resolve it or they resolve it. 

You can try and argue technicalities. But your risking your dads home in the meantime. You might win, you might not. 

Rainbow80

@MWT really appreciate your advice, all of which makes sense!

Rainbow80

@ACG thankyou, really helpful and makes a lot of sense. Appreciate the steer.

silvercar

Did your parents have a financial settlement at the time of divorce? That should state what happens to the house. If the house is still in joint names then she has a liability for the mortgage too. His real problem will be if she is entitled to some of the equity on sale.