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  • FIRST POST
    • Onebar
    • By Onebar 10th Nov 18, 2:10 PM
    • 3Posts
    • 1Thanks
    Onebar
    Equity Release Query
    • #1
    • 10th Nov 18, 2:10 PM
    Equity Release Query 10th Nov 18 at 2:10 PM
    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! ...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?
    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.
    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.
    Any thoughts/advice gratefully received.
Page 1
    • Dazed and confused
    • By Dazed and confused 10th Nov 18, 2:16 PM
    • 3,217 Posts
    • 1,607 Thanks
    Dazed and confused
    • #2
    • 10th Nov 18, 2:16 PM
    • #2
    • 10th Nov 18, 2:16 PM
    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
    B) 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.
    • Spreadsheetman
    • By Spreadsheetman 10th Nov 18, 3:06 PM
    • 155 Posts
    • 165 Thanks
    Spreadsheetman
    • #3
    • 10th Nov 18, 3:06 PM
    • #3
    • 10th Nov 18, 3:06 PM
    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
    B) 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.
    Originally posted by Dazed and confused
    ...and if the OP goes down the B) route and buys the house make sure they take advice on how to do it legally to avoid falling into a deprivation of assets trap if the mother-in-law requires social care later on.
    • antrobus
    • By antrobus 10th Nov 18, 3:22 PM
    • 16,234 Posts
    • 23,092 Thanks
    antrobus
    • #4
    • 10th Nov 18, 3:22 PM
    • #4
    • 10th Nov 18, 3:22 PM
    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! ...
    Originally posted by Onebar
    Sounds like a lifetime mortgage; the interest rolls up.

    ....
    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?.
    Originally posted by Onebar
    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.

    ....
    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....
    Originally posted by Onebar
    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.

    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.
    ...
    Originally posted by Onebar
    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?
    • Linton
    • By Linton 10th Nov 18, 3:43 PM
    • 9,969 Posts
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    Linton
    • #5
    • 10th Nov 18, 3:43 PM
    • #5
    • 10th Nov 18, 3:43 PM
    Any mainstream equity release these days will include a guarantee that the debt would not exceed the value of the house. However I do not know what the situation was 13 years ago - you should check. Early paying off equity release could incur charges - again you should check.


    I suggest you do not buy the house cheap. If you have the spare money pay off the ER and cover yourselves by a charge to be redeemed when it is sold. This will ensure that MIL retains some benefits from her ownership of the house.
    • xylophone
    • By xylophone 10th Nov 18, 4:15 PM
    • 27,354 Posts
    • 16,363 Thanks
    xylophone
    • #6
    • 10th Nov 18, 4:15 PM
    • #6
    • 10th Nov 18, 4:15 PM
    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).
    • Onebar
    • By Onebar 11th Nov 18, 9:47 AM
    • 3 Posts
    • 1 Thanks
    Onebar
    • #7
    • 11th Nov 18, 9:47 AM
    • #7
    • 11th Nov 18, 9:47 AM
    Many thanks to al of those that have responded, it's very much appreciated and all points duly noted

    The important lesson for me is never to opt for equity release unless in a position where I'm literally struggling to survive.
    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.
    • AnotherJoe
    • By AnotherJoe 11th Nov 18, 10:22 AM
    • 11,522 Posts
    • 13,338 Thanks
    AnotherJoe
    • #8
    • 11th Nov 18, 10:22 AM
    • #8
    • 11th Nov 18, 10:22 AM
    My commiserations regards your father in law. Regards what you said here

    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.
    Originally posted by Onebar
    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.
    Last edited by AnotherJoe; 11-11-2018 at 11:16 AM.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • AnotherJoe
    • By AnotherJoe 11th Nov 18, 10:24 AM
    • 11,522 Posts
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    AnotherJoe
    • #9
    • 11th Nov 18, 10:24 AM
    • #9
    • 11th Nov 18, 10:24 AM
    ...and if the OP goes down the B) route and buys the house make sure they take advice on how to do it legally to avoid falling into a deprivation of assets trap if the mother-in-law requires social care later on.
    Originally posted by Spreadsheetman
    What asset would that be? Because it's not the house.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • kidmugsy
    • By kidmugsy 11th Nov 18, 11:03 AM
    • 12,078 Posts
    • 8,527 Thanks
    kidmugsy
    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!
    Originally posted by Onebar
    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?

    I do wonder how many individuals really do understand the long term ramifications in terms of repayments.
    Originally posted by Onebar
    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.
    Free the dunston one next time too.
    • Spreadsheetman
    • By Spreadsheetman 11th Nov 18, 12:05 PM
    • 155 Posts
    • 165 Thanks
    Spreadsheetman
    What asset would that be? Because it's not the house.
    Originally posted by AnotherJoe
    It would be if they bought under market value.
    • AnotherJoe
    • By AnotherJoe 11th Nov 18, 1:27 PM
    • 11,522 Posts
    • 13,338 Thanks
    AnotherJoe
    It would be if they bought under market value.
    Originally posted by Spreadsheetman

    First i dont see how they can do that for two reaons.
    Aviva wont let them sell the house for a fiver or they would lose out.
    If Aviva dont care what its sold at as long as they get their money back, if they did sell the house for say 130k when its worth 150k they still have to find 20k to pay Aviva.


    Bottom line, The MiL has no equity in the hosue so theres no deprivation possible.

    They might be able to deprive Aviva.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • Onebar
    • By Onebar 11th Nov 18, 3:18 PM
    • 3 Posts
    • 1 Thanks
    Onebar
    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?



    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.
    Originally posted by kidmugsy
    Sounds very much like you're an Aviva shareholder Kidmugsey! ...firstly I have not inferred anywhere that the debt or interest on the debt shouldn't be repaid, nor have they been diddled. I also take exception to inferences that they were too stupid or ill to make their own financial decisions, clearly unlike your good self they lacked a certain amount of financial astuteness, it doesn't make them stupid as not everyone has the same level of monetary savvy, they are/were also from a generation where asking their children for assistance or guidance was basically not an option.
    My post was to enquire what the options were if any, thankfully others have responded in a constructive and civil manner.
    • kidmugsy
    • By kidmugsy 11th Nov 18, 5:27 PM
    • 12,078 Posts
    • 8,527 Thanks
    kidmugsy
    I also take exception to inferences that they were too stupid or ill to make their own financial decision
    Originally posted by Onebar
    You are the one who implied they'd made a foolish decision.

    I have no idea whether their decision was wise - it may well have been - but I do know that they were grown-ups and so are assumed to have capacity to sign a contract. Then they have to honour it, a prospect you seemed to find unappealing.
    Free the dunston one next time too.
    • Alexland
    • By Alexland 11th Nov 18, 8:09 PM
    • 3,656 Posts
    • 2,995 Thanks
    Alexland
    Using a compound interest calculator it sounds like Aviva have made an 8% annual return on their loan which isn't bad considering it was taken out before the financial crisis that unexpectedly pushed rates to rock bottom for the past decade. If rates had gone up for a decade they would have also needed to honour the deal?

    At the time I remember my mortgage rate was around 6%

    Alex

    Disclosure - we have money invested with Aviva which include their property investments.
    Last edited by Alexland; 11-11-2018 at 8:12 PM.
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