Lifetime mortage shock!

[FOF44]

My 85-year-old mum is disabled and has finally accepted that she needs to move into sheltered housing. She has been adamant for years that she wouldn't. It turns out that this is because she has a lifetime mortgage she had never mentioned, taken out in 1999. She borrowed £16,000. Yesterday she gave me the paperwork to investigate and to my horror the amount she now owes is about £100,000!! Even worse, if she pays that money back, there would be an early repayment fee of another £30,000 or so. I have spoken to the mortgage company this morning and apparently she can't transfer the mortgage to a property in a sheltered housing complex so she would need to pay the £130,000 to move ....which won't leave enough for a flat in sheltered housing. So she is effectively trapped and can't move. How can this be legal?? I am appalled at her stupidity, but equally appalled at the mortgage company's greed. I'm not sure why I'm posting, just needed to rant I guess. Unless anyone has any advice on how to get my mum out of this mess!?

I'm assuming this was some form of equity release mortgage, quite commonly taken out by pensioners to enable them to stay in their home until they die or move into nursing homes or similar. The repayment is always expected to come from the sale of the house. They are expensive as it's hard to accurately predict the amount of time they are in place.

I'm surprised at the prepayment cost of £30k, but typically this is because they are not designed to be prepaid, just for the house sale to pay them off.

You could investigate if she was 'missold' it, but they are a legitimate product.

www.ageuk.org.uk/information-advice/money-legal/income-tax/equity-release/

Definitely speak to Age UK, they will have the latest information on how to approach these schemes.

But you talk about greed, and how it can be legal…

If you put £16K on your credit card and then ignored it for 21 years, how much would you expect to repay? What if it ended up being even longer than 21 years?

£16K vs £100K looks awful.
But £16K in 1999 is, according to inflation calculator, £29K now.
£16K with 9% interest added every year for 21 years would take you to almost £100K. Do you think 9% interest per annum when you have to wait 21 years (or more) to get your return is greedy?

Is this an endowment mortgage?

Has she paid anything to the mortgage providers?

@DaisyNGO

Is this an endowment mortgage?

OP says it’s a lifetime mortgage - aka equity release.

@BernadetteRostankowskiWolowitz

Has she paid anything to the mortgage providers?

Unlikely. This will be an Equity Release Scheme. Problem with these is that you pay compound Interest, which means the amount you owe increases rapidly. The amount owed has to be paid back when house is sold or when the last living occupant goes into care.

Nothing you have said suggests that this was mis-sold.
I’m also not a big fan of these claim culture ambulance chaser firms.
As I said above - just how much would you expect to owe 21 years after borrowing £16K, considering inflation and a fair interest rate.
So I’d definitely start with Age UK, but I suppose you could also run it by one of these kind of no win no fee companies.
Just don’t then complain about their massive cut being unfair!

www.neglectassist.co.uk/areas-of-expertise/mis-sold-equity-release-mortgage?gclid=CjwKCAiAm7OMBhAQEiwArvGi3MuRMomJHzk0gH1JasoX44_prVViqbtnBUm78oiECIECZb0ucQm3DxoCqY8QAvD_BwE

The fact she was only 63 when she took it out, means you couldn’t even use the reason that she was starting to lose her mind etc..

Deary me, what a horrible situation

Oh gosh This page from Martin Lewis has a couple of similar stories at the top. www.moneysavingexpert.com/mortgages/equity-release/

If she hid it from you, it sounds like she knew the consequences of it so I'm not sure how that would affect any potential mis-selling route. Do you know if she had proper advice?

If she sells her house how much will she have left one the mortgage is paid off? She could probably rent a sheltered apartment, especially as she will qualify for housing support once her capital runs out.

As others have mentioned it is the impact of more than twenty years of compound interest. 9% is not that unusual on those kinds of deals. Don't forget that back in 1999 BoE base rate was 5.5%, mortgage rates were 6.5% for an amazing deal, many would have been on 7% rates even on a two year deal, let alone lifetime.

Unfortunately they are a very poor decision financially, but also reasonably popular, there is probably nothing you can do about it.

Speak to a legal professional. If she sells the house and pays off the mortgage, will she qualify for housing support, or will it be seen as her hiding assets?

Can she rent the house out and use that money to rent a sheltered apartment.

Is this not how standard equity release works? You stay in your house, but you don’t really own it at the end because the asset needs to be sold yo pay off the (extortionate but convenient) debt?

Normally with these is she is moving for care needs she could have early repayment charge removed under long term care but it depends on the company you are dealing with on their policy. Unfortunately she would have received an offer showing the interest over time. I would have thought the early repayment term would ceased by now too.

I really feel for your mum. I used to work for bank dealing with Equity Release mortgages early 2000s, and even then thought they were a bad idea. They took forever to do, a good 6 months or more. Your mothers solicitor would have had several checks to do, and the bank also had their own independent solicitors.

There was also a cooling off period of iirc 12 weeks where the bank or their solicitors couldn't contact the applicant and the applicant could cancel it at any time before going ahead with getting the money.

The £30000 fee is odd though, as the money would be paid from the sale of the house with no other fees.

I wondered about that @Bananaman123 as the (not early) repayment includes both care and death. But OP mentions sheltered housing - so I guess the devil is in the detail… care home is clearly care, a fancy expensive retirement village is just moving house. Not sure where sheltered housing fits between those! Definitely worth OP look at the detail - and challenging the ERC on those grounds.

Also surprised that the ERC isn’t lower anyway - 21 years seems well beyond an initial taper period. If it’s gilt linked, gilts are low, so that wouldn’t explain it being so high. But again - you need the paperwork!

I’d definitely challenge the ERC. I think the £100K is fair. Which isn’t to say I wouldn’t personally try to wriggle out of the full payment by coming it wasn’t, if possible…

I think if she needs to go into care, the house will have to be sold and the amount paid off. The terms normally allow for the property to be sold on death or the need for a care home without the early payment penalty.

If your Mum sold her house to go into sheltered Cate or a nursing home, would she still have to repay the £30k or just the £100k. She has obviously signed an equity release in 1999 and interest has compounded over the years. She likely did not tell you as she knew the consequences would be to lose her home and did not want you to know or worry.

@AdditionalCharacter they’re not always a bad idea though. They’re an expensive way to borrow money, sure - but why wouldn’t they be, when you don’t repay for decades?

At around 63, my guess is that the £16K allowed OP’s mother to pay off an unaffordable mortgage so that she could retire. Paying £100K after 21 years seems a lot (maybe) vs what was actually the equivalent of £29K now, back then. But if you consider that £100K bought not “just” £29K, but the freedom of years of stress free retirement (including possibly interest saved on a mortgage) then it’s not a bad choice.

That’s why I don’t jump straight into mis-selling. It’s a very specific product but it can really suit people.

Where OP’s mother has maybe come unstuck is not considering care costs. But… theoretically* the state will contribute to her care, and paying £100K to the mortgagor isn’t deprivation of assets.

*I appreciate that very much is theoretically!

Sell the house ,pay it off ,if the house isn’t worth that much ,we’ll if she hasn’t got it ,she hasn’t got it .
Get social services to do an assessment,and explain to them the situation
If she needs care she needs care
If she’s no money social services will pay

@Cocomarine

Definitely speak to Age UK, they will have the latest information on how to approach these schemes.

But you talk about greed, and how it can be legal…

If you put £16K on your credit card and then ignored it for 21 years, how much would you expect to repay? What if it ended up being even longer than 21 years?

£16K vs £100K looks awful.
But £16K in 1999 is, according to inflation calculator, £29K now.
£16K with 9% interest added every year for 21 years would take you to almost £100K. Do you think 9% interest per annum when you have to wait 21 years (or more) to get your return is greedy?

I personally think 9% interest per annum is very greedy! Bank of England base rate is a quarter of 1% currently. Also since 1999 interest rates have been incredibly low compared to the 80s and 90s. She took this out at the age of 63, maybe not fully understanding the consequences. Its a terrible shame.

Summersnake is giving the best advice!
I know what my nan would have done, she would have burnt the house down making sure she had no insurance, so these "greedy good for nothings" got nothing! Food for thought! lol

Perhaps not a bad thing for everyone @Cocomarine. We had a lot of people wanting them so they could buy a new car and have a fancy holiday cruise. Some used it to pay off their small existing mortgage.

These things would indeed have made their lives easier. Given though that the Ops mother wants to buy a place in sheltered accommodation but can't due to the huge amount owed, it doesnt always work out well in the end.

Pressed enter accidentally.

That is the risk the ops mother would have been told about though when taking it out.