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!?

@Summersnake

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

Yep this.

Post/search on MoneySavingExpertt forum

@MyGirlDrew

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

So your nan would have signed up for a deal, and then weasled her way out of it because they were good for nothing?

At least they were doing their robbery in daylight and the right side of the law

Also OP if you search MN itself there are lots of threads on this

@Summersnake

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

So she gets to have stayed in her house plus free care!

Talk about having your cake & eating it!

@MyGirlDrew

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

How dreadfully greedy of them to give her £16K when she needed it, and not to ask for repayment till she's ready to sell the house.

@MyGirlDrew
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.

So the interest rates previously were higher - which is what the calculations would have been made on.
She was 63, and a fully functioning adult (OP hasnt said otherwise) so shouldnt she be in control? The only worrying thing is that she hid it from her family which could indicate either an interfering family, or she was maybe talked in to it by her financial advisor??

OP, did your gran have legal advice when she took out this mortgage?

@MyGirlDrew

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

So your nan was a cheating arsehole then?

@FedUpAtHomeTroels

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

Not allowed to rent the property out under the terms of the mortgage.

Same happened with my late grandmother...nightmare....had to be paid...simple as....shouldn't be allowed to be advertised on the tv 😡

Sounds like equity release which would be paid back when the person dies and the house is sold. Meanwhile interest is added every year so the amount to be repaid grows all the time.

@MyGirlDrew
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.

Do you know much about interest rates?
For a start “incredibly low” since 1999? In Jan 1999, they were 6%. For almost a decade thereafter they went up and down between 3-6%, frequently touching the higher end of that. It’s only after the 2008 crash that we’ve see the

what happens if the homeowner is gone, and the house sale doesn't cover the amount owed to the company?

@DaisyNGO

what happens if the homeowner is gone, and the house sale doesn't cover the amount owed to the company?

Then the company gets what they can.

Ah compound interest - there are those that understand it and those that have it.

@DaisyNGO

what happens if the homeowner is gone, and the house sale doesn't cover the amount owed to the company?

ASFAIK it's a gamble the company takes.

The heirs don't owe anything

@Platax

OP, did your gran have legal advice when she took out this mortgage?

Most people don't see a solicitor regarding their mortgage, they see a financial advisor. And decide accordingly

@DaisyNGO

what happens if the homeowner is gone, and the house sale doesn't cover the amount owed to the company?

As PP says, then the lender loses out. They can’t claim it from the remaining estate - at least, a “no negative equity guarantee” is the standard now, I can’t comment on a specific loan from 1999

I’m repeating the PP because in light of the accusations of greed, I think it’s worth pointing this protection out. The lender gets no money back for potentially decades, and bears the risk of a fall in property prices. That’s why it’s not greedy to set an interest rate that’s higher than a regular mortgage. If property prices crash then, the lender has already had some repayments, and as the borrower may not even be moving, the property price may rise again anyway.

It’s not unusual for a house owned by a much older person to be worth below market value from lack of upkeep, too. Obviously not a given - but it’s a consideration.

The problem for OP’s mum is that she wants to go into a care home type facility, whereas if you die, you’re not personally impacted by how much needs to repaid. That’s a risk when taking out this loan, but even though we all like to talk about care costs, it’s still a minority of people who don’t remain in their own home. So it’s not a bad risk to take on.

I've got a horrible feeling that my Mum has done the same..............

That a product is expensive (rightly or wrongly according to your point of view!) doesn’t mean it was mis-sold.

If you’re of sound mind and see a clear illustration that £16K could be £100K in 20 years - you make your choice.

If you see a financial advisor who never shows you that illustration, gets a fat commission, and fails to point out that if your mortgage is too big you could sell your 3 bed house for 2 bed flat, or that you could in fact remortgage to a lower rate that will remain affordable for you - then you’re into the land of mis-selling.

I’m so confused. Did they pay off your mums mortgage and then give her 16k per annum or has she been left with over a 100k debt for a 16k loan? I can’t make it out.

@RubyTuesday70

I've got a horrible feeling that my Mum has done the same..............

Do you know when? The later the product was taken out, the better the terms I think - generally. If her early repayment charge is on a taper, then it might be worth family looking at paying it off and buying the property from her. Not an avenue all can afford, but worth looking at. Otherwise - it’s not necessarily a bad thing for your mum. It is essentially a big fat envelope of cash that most people never have to pay back, whilst they’re around to see it! And they can still live in their home. I know I’m sounding like one of the ads now! I promise I don’t sell these 🤣 I just hate the knee jerk that older people (55+!) don’t know that they’re signing and that these products are always greedy and mis-sold. If I don’t want to leave an inheritance, and my pension and other assets will cover care… I’d definitely consider pissing away an equity release sum on shiny things!!

The second

@FreeBritnee

I’m so confused. Did they pay off your mums mortgage and then give her 16k per annum or has she been left with over a 100k debt for a 16k loan? I can’t make it out.

Do you know what equity release is? (aka lifetime mortgage?)

The loan company gave the homeowner £16K there and then. Secured against the equity in her house (it’s value minus any outstanding mortgage) She agreed that it would be repaid later from the sale of the house. That’s not on a fixed date - it’s either when she dies, or when she sells the house for other reasons. For most “other reasons” (like downsizing) this triggers repayment and an early repayment charge. An exception is if you move for care reasons. That still triggers repayments if your house is sold, but no early repayment charge.

The upside for the borrower is that she got £16K in her pocket there and then, with ZERO monthly repayments, ever.

The downside is that the lender has to make their money… so they charge interest. So every year what is owed gets bigger. And it’s not just interest on the £16K, but on the interest. For example,10% interest on £16K is £1,600. So at the end of year 1, you owe £17,600. Your 10% interest in year 2 isn’t £1,600 again, but £1760. So it snowballs, and the amount you end up owing gets pretty big.

Imagine you didn’t repay your credit card, ever… and it just gets bigger and bigger. It’s just like that - except no-one is chasing the repayment every month like your credit card company, because everyone agreed in the first place that you’d only repay / plus interest - when you died or sold up.

And before anyone starts on with “they need to teach about compound interest in schools”, it’s on the Y7 maths curriculum.