Lifetime Mortgage - Equity Release shock!

[FruHagen]

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?

I'd been considering this to help the dcs. I wont think about it now.
Thanks for your thread @FruHagen
And I'm so sorry you are in this situation.

My Nan took out an equity release policy for £30k in 2003 and when she realised how quickly the amount to be repaid was building up she asked the equity release company if she could pay the interest off each month out of her pension. They allowed this and it at least gave her the peace of mind that the debt wasn't continuing to increase. She was terrified of the debt reaching the full value of the house and the equity release company making her homeless although we told her they couldn't do this. She often said taking out that equity release loan was the worst thing she ever did. So sad for her.

Also be very wary of buying retirement homes for the elderly - these are also very expensive with high service charges and difficult to sell on after death. MIL died in may 2019 and we are still trying to sell her retirement apartment over 18 months later. Even though we have priced it £100,000 less than current new ones are in the same block and its in virtually new condition nobody has offered so far and we are paying service charges for an empty apartment.

With hind site i would only consider one of these places as a rental - it would be cheaper.

Equity Release is an evil system that should be banned.
The companies take advantage of older people and sell them something they do not need.
My in-laws took out a £10k loan for a holiday, then they kept calling and offering more. My FIL accepted one of their "final offers". He now has £30k sitting in a bank account, just in case he needs it, and the debt against his house means he will have almost nothing left if he sells it.

Don't ever do equity release.

Equity release is nowhere near as bad as it used to be, but obviously there's a lot of old style bad loans still out there that people took out when interest rates were higher and less regulation.

Now I think you cannot go into negative equity, and interest rates are much lower.

Obviously, downsizing should be a consideration for asset rich, cash poor older people, but as the thread currently running on here indicates, many people are against this, even when it makes financial and practical sense.

There's a guide on money saving expert for anyone considering this

www.moneysavingexpert.com/mortgages/equity-release/

And if you Google equity release misselling, there's lots of information, but predictably, the 'no win no fee' sharks are circling, but I see that there's lots of money saving expert threads about it, and you can possibly complain via their resolver tool, which is free and industry approved, but I can't see a mse guide specifically about misselling, but maybe if the OPs DF did this without her DMs agreement that's the angle you need to use. You'll probably have to complain to the provider and then the financial ombudsman, but I don't know if you have any rights to reduce the debt at all.

Could you and your siblings all increase your own mortgages by x amount and use the money to clear the debt?

I think this will be the next big financial scandal...like PPI was. There are adverts everywhere for these things now.

My parents have taken out a lifetime mortgage and are paying a monthly sum to repay it in 11 years. They can pay 10% a year back and the extra year is the interest. Then there's enough money in life insurance policies to pay it if anything happens to them.

I think a lot of this happens because people don't actually consider the ramifications or pay anything back.

Did this not come up when dealing with your DFs estate when he died? Was your DM the executor?

So sorry OP this is awful. What a shock. Looks as though this is widespread. Can’t believe it is actually legal.

I’ve caught my own seemingly clued up parents making dubious financial decisions -it’s really worrying.

@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.....

As far as I remember, the value of the loan will not extend over the value of the property, so the house is worth more than 2.5m? And borrowing 90,000 and not paying anything back, over 25 years, what would you be expecting??

I am so shocked by this deal, can it be legal? They're taking the whole house for a 30k debt
There have been no funds paid back at all, they are not giving you the money for your benefit. You will be charged interest and of you dont pay it back, then it gets added on.

I've worked in the back office for a well known company who have this, and all the paperwork has the disclaimer this is not the cheapest way to borrow money, but if you have no other way of getting money, and want to update/make your house more accessible, then they can work

@VinterKvinna we didn't know about it, nor did my Mother and if we did we would of paid it off when it was manageable. I understand the concept of reasonable lending and interest.

But this is obviously a scam! How can you defend it? My Father also took it out without her knowledge or understanding while he was receiving cancer treatment for the cancer that killed him a year later.

I wonder if the advisor who earnt a commission on this "deal" asked my Father why he would do something like this if he was receiving cancer treatment? Also I wonder if they asked what my Mother would think of this when she was left widowed after his obvious imminent death? But they didn't ask her this because she wasn't named on the mortgage and as such wasn't present at this enormous shameful scam.

Everyone who benefited from this is morally bankrupt.

There's plenty of things that are "legal" - because companies can make money out of them. Doesn't make them right.

@Tier10 we are looking into it.

@BigRedBoat no it didn't come up. I am not sure how on earth it didn't. I am looking into why now but hard during lockdown as I can't visit and look at physical documents.

Sadly my Mother allowed my Father to do absolutely everything to do with money her entire life. Mostly this worked out great for their partnership and they lived a secure life but this was a very strange blip in his otherwise incredibly conservative spending and borrowing. Totally out of character.

So bizarre and so sad we didn't know until now.

This is like a loan secured on the property. If your mum needs to move for care needs it is likely there is a clause in the terms and conditions to waive any early repayment charge, but there will be certain criteria she needs to fall under. This type of mortgage is designed to be repaid on death or when moving into care. Interest will continue until its repaid, even after death. There woould have been a projection of figures over abojt 15 to 20 yrs showinv what the balance would be and this would have also been explained to both yohr parents at least once by a solicitor (ma have had advice too?). If both parents are on the mortgage they would have both needex to confirm they underztand and signed an application and mortgage deed.

While its shocking, and i agree the interest on these are huge, there isnt much you can do other than work with the company to see what optiins are available. These are still actively sold by companies like age partnership and many people dont tell their families about the loans they borrow.

Im sorry you have to deal with this, not something you need especially if you have other things to attend to for your mum. If you have authority you can ask for copies of the original offer etc that they agreed to and terms and conditions incase there is an early repayment charge.

I second being really wary about buying retirement properties. Many of them turn out to be just as bad as equity release and you really don't want to go through this sort of situation twice. The fees can be high and last for as long as you have the property. They do not stop when the owner dies, it just becomes the executor/benificiary's problem. They can be nigh on impossible to sell and can only go to a very small section of the population. Some people have found them to be pretty much worthless. A family friend had lots of trouble when her mother needed to move to a care home and couldn't sell. She had too high value assets on paper to get any help, but couldn't free up the money.

@FruHagen

VinterKvinna we didn't know about it, nor did my Mother and if we did we would of paid it off when it was manageable. I understand the concept of reasonable lending and interest.

That's not the fault of the agent though, that's the fault of your df

My in laws have one of these absolutely dreadful things
I looked into buying the house off them but to service the mortgage I worked out I was better investing the money in the long term
It’s their money / asset to spend as they wish however it is a very expensive way to borrow money especially once it starts compounding up

And no it's not the fault of my DF it's the fault of the "agent" for advising that this was ok. Salespeople selling unethical products is what this was.

You know it

I know it

The Financial Ombudsman knows it. That is why this is the single biggest complaint issue they have.

Everyone else in the country knows it.

You can continue to tell yourself it's ok, if it makes your job more bearable but it's not.

Ok... OP take a deep breath.

1. When was the ER taken out?
2. What is the interest rate?
3. Is there an ERC payable is the mortgage is redeemed? Even if there is, you need proper, qualified financial advice.

Equity release now is heavily regulated, old policies are mostly likely out of date and need refinancing. Any ER plan now under the equity release council is no negative equity guaranteed. Equity release is now a specialised advice area and not something you should walk into "off the high street" so to speak.

"Equity Release is an evil system that should be banned.
The companies take advantage of older people and sell them something they do not need.
My in-laws took out a £10k loan for a holiday, then they kept calling and offering more. My FIL accepted one of their "final offers". He now has £30k sitting in a bank account, just in case he needs it, and the debt against his house means he will have almost nothing left if he sells it.

Don't ever do equity release"

Your in laws had terrible advice. There IS a place for equity release but you MUST go through a fully qualified adviser who is trained in this area who would say NO to this scenario. There are, however, scenarios where equity release is a sensible option. But not those options on tv where a grey suited salesman is prancing dancing in a posh cul de sac selling holidays!

Why would he not tell his wife if it was a good idea? For some equity release will work, if it enables them to stay on the houses they want to, enables people to make adjustments to their property which they would not have been able to do otherwise.

Yeah, they don't work for everyone but they do work for some

The Financial Ombudsman knows it. That is why this is the single biggest complaint issue they have.

More than ppi? Doubt it

Any ER adviser worth their salt involves the beneficiaries in the advice process. This thread proves why.