Equity Release Query

Does the contract with Aviva explain either,

A) If there is a cap on the debt i.e. it cannot exceed the value of the property
If the property can actually be sold to a third party and the debt simply paid off in cash?

Looking on the bright side this will stop you making the same mistake/choice.

Onebar wrote: »

I'm not sure this is in the correct category but here goes, my father-in-law recently passed away and my wife was asked to look at the household finances by her mother. 13 years ago they took a £54k equity release payment through Aviva and she has just found a statement which states the debt owed to Aviva now stands at circa £150k! ...

Sounds like a lifetime mortgage; the interest rolls up.

Onebar wrote: »

....
Whilst there's still a small amount of equity left in the property is there any way out of this, and should my mother in law live to a ripe old age, will the debt to Aviva effectively put the property into negative equity?.

Possibly. But that's the risk that the likes of Aviva take. I believe that there is normally a 'guarantee' that they write off any future shortfall.

Onebar wrote: »

....
In short we would like to pay this off before accruing more debt, for example could we purchase the property for hypothetically £150k (which is below market value) to pay off the debt and stop funding Aviva....

Or just send Aviva a cheque.

And it's the other way round, it's Aviva who funded your parents to the tune of £54k. One can only hope they had a good time spending the money.

Onebar wrote: »

There are huge marketing drives for equity release but I do wonder how many individuals really do understand the long term ramifications in terms of repayments.
...

There are no repayments. That's the point of these deals. You get the cash now, the lender gets the house.

Question; why do you want a way out of this? Your MIL can carry on living in her home until she dies or goes into care. Is there a particular reason why you want to retain ownership of this particular property?

If the terms of the ER allow you could lend your MIL enough money to pay off Aviva and take a first charge on the property yourselves.

You could make the loan interest free, or she can pay you interest (report to HMRC) or you can allow it to roll up (could be high Income tax bill in year of payment) or link to an index - ditto re Income Tax) or link to a proportion of increased value of the house (CGT implications).

My commiserations regards your father in law. Regards what you said here

Onebar wrote: »

I sadly don't have the funds to lend my MiL the repayment sum and the only way I could see breaking the repayment chain was to take a mortgage ourselves on the property to raise the funds, possibly even by the way of a joint ownership arrangement
It would seem that therefore as has been mentioned it's effectively a lifetime mortgage and paying for some property repairs all those years ago has effectively given Aviva the property my in-laws spent their entire life working for, such a sad state of affairs.

Your parents in law borrowing fifty four thousand pounds and then not paying a penny back over 13 years is what did that.
What was the alternative? Could you have paid them the money for home repairs? (that's a mighty big home repair bill on a house that presumably was only worth double that amount or so 13 years ago) did they really spend £54k repairinga £100k house?)
Also, now the amount owed is bumping up against the value of the house, the risk is all Avivas. Let's say your MiL lives another 20 years in the house. That's 20 years interest free loan on £150k.

The situation now is that financially you as a family are best off with your MiL staying in her house as long as possible, it's too late to pay it off, and there's no benefit at all to you or her buying her house or paying off the loan.
Even if the amount is allowed to keep growing above the value of the house, as long as your mum dies with no significant assets, Aviva can't get blood out of a stone. So, whilst it seems unlikely this would happen, you don't want your MiL accumulating a lot of assets that could go to Aviva when she dies, she should spend it, gift it to you and grandchildren, the local cats home, whatever. I'm sure if she gifts you money you can help her out with groceries and the like if she is short a few readies, if you get my drift.
First step, find out if the amount is bounded to the sale value of the house.
Second step, if it isn't, make sure MiLs assets are spent by her.

Onebar wrote: »

13 years ago they took a £54k equity release payment through Aviva and she has just found a statement which states the debt owed to Aviva now stands at circa £150k!

They rented the money and they rolled up the rent. Eventually the debt must be paid, in whole or in part. They've had 13 years of use of the money. Are you alleging that Aviva has diddled them? Are you claiming that they were too stupid, or too ill, to be trusted with making their own financial decisions, and that Aviva should have diagnosed that?

Onebar wrote: »

I do wonder how many individuals really do understand the long term ramifications in terms of repayments.

I dare say some people think they'll take the money from Aviva and hope that many years later political pressure will be brought to rob the Aviva shareholders of what is rightfully theirs.