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?

@TiddyTid

It was taken out 15 years ago.

There seems to be two payments out. 5 years apart so first one is 5 years before, making original agreement 20 years old

Interest rate I need to check but around 7% is what I think, but the compounding has obviously skyrocketed the lenders profits

The early release fee is currently 37,000 and it must be done by cash transfer at a set time and with a solicitor involved. Completely impossible for my Mother to arrange alone.

I believe there will be no negative equity issue but I have yet to clarify that with the company as I don't have Power of Attorney yet.

@MyGazeboisLeaking

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.

Agree 100%

Thanks Fru. 7% is high! 15 yr old policy is definitely from the dark days of ER. I suspect the ERC is tied into gilt yields so will remain for the foreseeable. It's quite possible to refinance at a much lower rate, despite the ERC and still be better off, perhaps switching to a plan where interest can be serviced instead of letting it roll-up. Rolling up at 7% is bloody painful especially after 15 years of compounding!

As you've probably guessed I'm an IFA with an ER qualification and stories like yours upset me a great deal. ER is a last resort type plan or a clever financial planning tool (IHT mitigation for example) or a means for someone to remain in the family home BUT they have to know all the ins and outs, it's written out in full many times over in bold! and signed off before anything happens and regularly reviewed. There is no reason to still be in a 15 year old policy at that rate....

MIL was in pretty much the same situation, trapped for life really in a house that was fast becoming unsuitable for her as she hit her 80s.
Luckily, so luckily, she received an unexpected inheritance which allowed her to get shot of the equity release for the princely sum of £70k for a £30k release 15 years ago.
The only other option I could see was her selling the house and living in a studio flat or caravan the rest of her life.
(She's now ensconced in a lovely 2 bed flat in a sheltered development, they seem to be having the best lockdown ever as they are all isolating as a block and having socially distanced meetings in the communal lounge.)
It's a timebomb.

@TiddyTid thanks for your input. I did guess your job and I'm thankful for you on this thread

Do you think I can actually negotiate something with the company to refinance this deal?
What would I do? Request to reduce interest rate and/or start paying interest as it accrues?

Is it possible to negotiate out of this deal or down from this deal so it aligns with modern standards?

Can I do something like this alone or do I need professional advice to go further with it?

@LionLily sounds very similar situation.

So brilliant your MIL managed to get out.
Someone was looking down on her Cheers to her old age

I'd say it's unlikely the current lender would change the mortgage to a lower rate from experience. I would go to an IFA via unbiased.co.uk who specialises in ER and can source whole of market. Advisers on there are fully verified and have to prove they have the correct qualifications to give advice in this area.

I would also look into why this plan was taken out in the first place and on what basis?. I have turned down a fair few ER cases where it was just not necessary to go down this route. It saddens me the tv adverts on how "easy" it is. It shouldn't be but it can be an excellent route for some but only in the right circumstances.