My dad and his flat

[winkywinkola]

My dad owns his flat. He's 76 years old. Hale and hearty.

Five years ago, he took out a loan on his flat. £25k. He wanted to study and travel in Italy.

The interest has now increased to loan to £38k. The loan company will own his flat soon but he's assured he can stay in it until he dies.

I'm astonished he did this - he's sold his flat for £25k! - but that's beside the point.

What can he do? He can't get a mortgage based on the increased equity of the flat to pay off the loan? I don't know what equity he has.

Would a bank lend him the money and he pays back the bank rather than the loan company?

Any advice gratefully received.

It sounds like an equity release scheme your Dad has entered into. These sound like a good idea but the interest rates mount up over the years if no interest is being paid and it is just being added to the original loan. Your Dad might be able to get a loan if he has enough pension to cover one and in view of his age the bank will probably need somebody to go guarantor for him.

It might be worth giving the Citizens Advice bureau a ring or one of the charities for older people like Help the Aged but I think it's changed names now. They've no doubt dealt with people in this situation.

Thank you. CAB is a good idea too.

The interest rate is high.

And he has to pay a penalty fee if he manages to pay it off early.

He can't pay it off in one lump sum. He could only pay parts off and they won't let him do that. Is that legal?

Anyway, would it be possible for him to sell me part ownership of his flat and I get a mortgage to facilitate that? That way we could pay off the £39k he owes.

Is there such a thing?

I'm not a financial expert so definitely get other advice. There is a slim chance he could argue he was mis-sold this agreement. . It does sound a very unfair one. Not sure if you can buy half his house and remortgage. It depends on the agreement with this company he is tied into. I think they rely on people not paying it off and that's where they make their money. So I expect they make it as difficult as possible for people to pay it off.

Ask your Dad for his paperwork, equity release schemes are highly regulated and need specific qualifications to arrange. The adviser would also have to send a reason why letter to explain why they have recommended the product your father took out.

As an IFA we always insist our clients sign a copy of this letter which also details charges and fees.

Whilst there is a place for equity release, I don't believe in them and have always found alternative routes for clients

It sounds like an equity release scheme - if so, the debt will double every 10 years broadly speaking.

Depending on the arrangement, those who have taken out equity release are usually allowed to stay in their property until death or moving into long term care; selling the property or repaying the loan early for any other reason usually incurs early repayment charges. Typically the early repayment charge will be based on gilt yields and so will fluctuate.

As a PP has said, equity release is pretty heavily regulated. In addition to financial advice, your Dad will have needed to seek legal advice also regarding the conveyancing side of things and the solicitor would need to have been sure that he understood what he was getting himself into.

My brother (53) has major money trouble and our mother (80) has been subbing him. She went to Age Concern wanting advice on how to handle the situation. To her surprise they offered to work with my brother to sort out his mess, which is now happening. So that's another source of support.