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Legal matters

Dodgy equity release deal? Any thoughts?

2 replies

Yermina · 23/10/2013 19:45

About 10 years ago my dad approached his bank to discuss taking out a repayment mortgage for £30K to fund replacing the windows on his house. He was retired on a good index linked civil service pension and could easily have afforded the repayments on his pension. The adviser at the bank referred him to his father, a solicitor, who persuaded my dad to borrow 60K by equity release on a scheme whereby the interest (at 6.9%) would just roll up over the years until the house was sold, presumably after my parents' death or a decision to down-size.

By the end of this year the equity release will have grown to 108K, and it has dawned on my mum, who is now nearly 80, that if she needs or wants to downsize (which she may need to do, given the fact that the garden of the family house is a quarter of an acre, the house costs a fortune to heat and run, and she has no downstairs toilet, which is a problem as she has arthritis and is finding the stairs a big struggle), she may be unable to find anything affordable to move into with what's left of the equity in the area in which she has lived for the last 40 years.

The thing is, the more she tells me about how the equity release was organised, the more dodgy it looks. She had shared ownership of the house with my father, but was (and still is) really, really clueless about money and played no or a small part in any major (and most minor) decisions about household finances, including any purchases above the level of daily expenditure on food. By way of example, until my dad died she had never used a cashpoint, wasn't sure how to use her debit card in shops, and relied on my father to give her cash for housekeeping. She signed the papers for the equity release, but I believe she had no idea of what 'compound interest' meant when she agreed to the scheme, and nobody ever sat her down and discussed what the risks of equity release might be. She was assured that she could stay in the house until she died, but nobody ever discussed what might happen if she lived many years longer than my father, when she would be on a much smaller income than they had had as a couple. Also, what would happen if she became disabled and could no longer cope with the house. And my parents didn't discuss the equity release scheme with us (me, my sister and brother) until after it was signed, although we are a close family.

As a family we're going to try and sort this out. My sister (who moved in with my mum after my dad died) has been told that if my mum gives her a share of the property she can take out an interest only loan on it and pay off the equity release. She will then pay the interest on the loan in lieu of rent, which will stop the interest piling up. This loan has already been agreed in principle, and we are hoping the legalities of it (which are obviously quite complicated) can be dealt with fairly speedily. This means that if my mum needs to sell the house at a later date to downsize, she will keep more of the equity.

Any-hoo, sorry to be boring, but didn't want to drip-feed. Question is - does anyone ever have any success with taking equity release providers to court for miss-selling them a product? Because it seems to me that my mum has a case for miss-selling that is at least as strong as that of the squillions of people who've been miss-sold PPI insurance.....

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mumblechum1 · 24/10/2013 09:59

Sorry, I know this isn't terribly helpful but you absolutely do need to go and see a specialist solicitor and show them all the paperwork.

On the face of it, it does look like a case of miss-selling but you would have to prove who said what to whom at the time.

Try the FSA initially and they may be able to give you some general pointers.

Equity release is often a really bad idea. I advised my dad against it years ago but he ignored my advice Hmm

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PeppermintPasty · 24/10/2013 22:32

I'm a solicitor and have dealt with equity releases from time to time. I too think they are a terrible idea, and I tell the client this. The whole reason for coming to me is to get independent advice about it, which must be included in the application.

Clients are referred to me via a third party (a legitimate one of course!) after they have seen a rep from the equity release co, an insurance company. They have already been talked into it when they come to me.
My job is to make sure they know all the risks. I have to go through a checklist of the risks (plenty), and there are several things they have to sign, to ensure they know what they're doing.

The point is, if your mum can prove that she didn't receive the advice, then she may have a case.
I don't deal with them so much now. I really dislike them, and used to spend most of the interview hammering home the risks in layman's terms.

They never listened though!!

Finally, it would be more than my job's worth to sign up a client if I thought they didn't understand. I always get them to summarise the risks for me. So, a long winded way of saying-get thee to a solicitor, as your mum may have a claim.

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