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Original poster

Lifetime Mortgage - Equity Release shock!

57 replies

FruHagen · 20/01/2021 18:59

So my elderly Mother might need to move from her home to either somewhere closer to family or a retirement village so we are looking into the following.

My siblings and I have always thought she owned the house outright as my parents bought it years ago and there's been no mortgage payments. It was common knowledge and we'd often say, "at least you own your home" to her. The house was a downside from their considerable property 20 years ago and was way less than they sold their previous house for.

However it turns out that my Dad took an Equity Release out somewhere around 15 years ago. It was for 30k

Now I look at the paperwork it seems that this Equity Release is known as a Lifetime Mortgage and the original debt is secured in the house value and they recoup their money plus masses of interest when it is sold after my Mother dies or if it is sold before.

The current amount of this debt is 160k so if the house is sold now there is very little left after repaying that for my Mum to buy a retirement place. Plus in 10 years the debt will exceed the worth of the house.

I am so shocked by this deal, can it be legal? They're taking the whole house for a 30k debt.

So anyhow I have a plan but I need some help and advice.
What about if I bought my Mums house (the debt) on a mortgage and then I paid that mortgage. So basically kick out this company. I would have to make the mortgage payments but at least the house value wouldn't decrease more as the debt racked up.

Does anyone know how I could do this?

OP posts:
titchy · 20/01/2021 19:10

You can't buy the debt using another debt, but your mother could sell the house to you which would then enable her to pay it off. Assuming you could get a mortgage in your own right on the house and have a deposit. You'd have to pay stamp duty at the higher second home rate too. Couldn't she just sell on the open market?

You'd have to pay market price though, otherwise your mother could be found to have deprived herself of assets and not be eligible for any care funding.

Lifetime mortgages are awful though usually. I'm guessing there's no way you could prove that your father wasn't fully aware or didn't take proper advice? Also assume your mother was joint owner and signed the documents and was also fully aware? Otherwise could be a case for miss-selling.

CottonSock · 20/01/2021 19:11

That's so awful. Could you try citizen's advice?

Hotcuppatea · 20/01/2021 19:14

Wow! What an awful shock. I wonder what Martin Lewis has to say about these?

titchy · 20/01/2021 19:14

It represents an annual interest rate of 14% by the way.

OneRingToRuleThemAll · 20/01/2021 19:19

This is sad but isn't surprising. Many elderly people have homes with heaps of equity but no ready cash. They don't realise the implications of drawing down some of that cash from these companies.

HoneyandToast · 20/01/2021 19:31

I used to give advice on these arrangements (am a solicitor). I hated doing it. I would always tell my clients that it was an incredibly expensive way to borrow money and they should consider that they had given up all of their equity to the lender. The debt racks up so fast that before you know it the lot’s gone.

If your parents were advised by someone like me (and it’s almost always a lender requirement to take legal advice before funds are released) then there’s likely little you can do to undo it. The only way out is to pay them off. As the pps have said, you’d need to pay full market value in relation to any transfer to you.

wizzbangfizz · 20/01/2021 19:44

Will you be any better off buying it? I wouldn't think you would be as the only beneficiary is the debt company and you would essentially be paying for the property twice

Original poster
FruHagen · 20/01/2021 19:49

@wizzbangfizz it's really to stop the debt increasing. If it's paid off now then it's 160k that the debt company get, if it's paid off in 5 years it's nearly the entire value of the house they get and if we do nothing then they take everything when she dies or goes into care (their words not mine)

OP posts:
dudsville · 20/01/2021 20:20

I've only recently learned about this through a friend and her mother, though not as severe your mother's situation op. It seems corrupt.

Original poster
FruHagen · 20/01/2021 20:52

@HoneyandToast as you and pps said I'd need to pay full market value for house??

So my Mum would have to put it on market and I'd have to get a mortgage for whatever the market "said"? Is that correct?

Not possible to just mortgage the debt? Basically take out a mortgage for the house that was priced by us at 160k (debt) not 240k (market value)

?

It all seems so impossible. Looking at the documents makes me want to cry and thinking about my late father doing this also adds a horrible shadow.

He was receiving cancer treatment when he took out the original loan and my Mum says she knew nothing about it. But how the hell do I prove any of that.

OP posts:
Puffykins · 20/01/2021 21:05

We're dealing with this with my Grandfather's house now. He borrowed 90,000 - or less even - back in 1995 or so. It's now 2.5 MILLION and every month we don't sell the house another 10,000 gets added to it.
On the plus side, I now know not to do equity release. Ever.....

friskybivalves · 20/01/2021 21:13

My aunt was in just this position. She had to take out a mortgage to pay out one of these equity release companies after her DH died. She was able to do it. The sum she owed was far more than her DH had released but still less than it would have been had she let it keep running up. OP, what makes you think you can't do the same? Have you asked the company for your options? Are they just putting up obstacles in the hope you will give up and go away?

JammyC · 20/01/2021 21:23

My nan had this problem. In the end after a lot of debate with the lifetime mortgage company they agreed she could port the mortgage to a similar property that was closer to my mum. There was a charge payable which was thousands but in her case achievable compared with paying off the full debt. The deal was the company had to agree the new property was of a similar investment to the original one, ie that when she eventually sold the new property after her death the debt would be covered. So she couldn’t down size.

titchy · 20/01/2021 21:25

Not possible to just mortgage the debt? Basically take out a mortgage for the house that was priced by us at 160k (debt) not 240k (market value)

No lender is going to lend you £160k for debt consolidation - that's the issue. You won't get an unsecured loan for that amount. If you could remortgage your own home for that amount and are prepared to tell your lender it's for an extension then that might be workable.

If you want to stop the debt getting higher could you approach the company and see if they'll convert it to an interest only loan that you pay interest on.

What's the issue with selling though if your dm needs to move to a retirement home?

titchy · 20/01/2021 21:25

He was receiving cancer treatment when he took out the original loan and my Mum says she knew nothing about it. But how the hell do I prove any of that.

Was she a joint owner at the time? Did she sign anything?

titchy · 20/01/2021 21:26

@Puffykins

We're dealing with this with my Grandfather's house now. He borrowed 90,000 - or less even - back in 1995 or so. It's now 2.5 MILLION and every month we don't sell the house another 10,000 gets added to it. On the plus side, I now know not to do equity release. Ever.....
Fuck ShockShockShock
Hotcuppatea · 20/01/2021 21:41

@Puffykins

We're dealing with this with my Grandfather's house now. He borrowed 90,000 - or less even - back in 1995 or so. It's now 2.5 MILLION and every month we don't sell the house another 10,000 gets added to it. On the plus side, I now know not to do equity release. Ever.....
Jesus. How is this legal?
Original poster
FruHagen · 20/01/2021 21:43

@titchy she wasn't a joint owner, my Dad had everything in his name. I presume it is now in her name after he died.

OP posts:
titchy · 20/01/2021 21:45

I know nothing about this sort of thing but is it possible to find out if legally the debt was solely your fathers. And that when he died the debt should have been frozen and no further interest payable?

Probably a long shot sorry.

Original poster
FruHagen · 20/01/2021 21:46

Also the issue with selling and moving to a retirement home is that there's not enough left to buy one after the debt is repaid.

OP posts:
MaggieFS · 20/01/2021 21:50

OMG, is this the type of thing like those adverts with the jangly tune where they come to you and you sit down and have a cup of tea? Wow. I knew they'd have a hold on the house, but now can those interest rates be legal?

choirmumoftwo · 20/01/2021 21:57

We've just dealt with this after FIL died in the summer. He and MIL took out equity release for around £27,000 20 years ago. We've just sold the house and repaid £81,000. It's a hideously expensive way to borrow money and FIL was very distressed about it at the end as it meant there was very little inheritance left. He hadn't expected to live to be 90! The only comfort for him was that the debt couldn't exceed the final value of the house so he wasn't leaving a debt to his family.
Ultimately it doesn't matter to us - it was their money to use for their comfort while they were alive. I'd never do it though unless I was desperate.

titchy · 20/01/2021 22:02

@MaggieFS

OMG, is this the type of thing like those adverts with the jangly tune where they come to you and you sit down and have a cup of tea? Wow. I knew they'd have a hold on the house, but now can those interest rates be legal?
Thing is the interest rate is 'only' 14% - large yes, but bank base rates were that no so long ago briefly so not totally outrageous like Wonga type loan rates.
Snorkelface · 20/01/2021 22:07

Same situation here except the debt has already exceeded the value of the property, feck all you can probably do. I'm so sorry OP, it's a really shitty situation. I remember the shock of this coming to light, the vague hope that perhaps the money received by the family member had been invested somehow or they'd chosen the type of equity release where you could reduce the amount owed and there might still be some leeway, but no. In our case the relative blew the money on absolute shite and has nothing left except a property in need of expensive repairs they can't pay for but which remains their responsibility to maintain despite belonging to the equity release company.

MyGazeboisLeaking · 20/01/2021 22:09

I'm so sorry to all of you / your families affected by this.

It's heartbreaking and blood boiling. Vulture companies, should absolutely not be allowed.

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