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'd argue the £30k penalty for paying it off could be misselling. No knowledge of experience, but if the charge is payable upon selling the house to go into supported housing, then given the product is for an elderly person this should be treated as the same as selling to cover care costs which as I understand doesn't incur the charge.

The £100k obvs needs to be replayed, but I think you should argue about the additional £30k.

@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.

We don’t know why the OP’s mum wanted the £16K. Maybe she bought a second hand Ferrari!

It was me that mentioned paying off the mortgage, because it’s quite a common reason for equity release. You get to 63, say, and you’re desperate to retire. But you’ve got no pension until 67, and a mortgage to pay off. Get an equity release loan and you can pay off your mortgage and live on the rest for the next 4 years until you get your pension. Or maybe you had an interest only mortgage, and you’re facing losing your home because you can’t repay it. So you do equity release. You know in the long term that’s a very expensive loan… but you might still choose that, eyes wide open.

She might be able to get another lifetime mortgage on the new house. I would seek advise straight away. I work in conveyancing (Scotland) and I have seen this done often. As an aside you always have to take the advice of a solicitor before you sign off on an Equity Release Mortgage so your mum would have been well aware of the consequences when she signed up. There are different types of equity release where you actually pay the mortgage and they are not as brutal but your mum has effectively borrowed £16,000 and never paid anything back.

How much has her house value gone up since then? In 2001 the previous owners of our property paid £69,995 for our house. We bought it for £240,000 in 2016. £16,000 would have been a significant chunk of the equity at the time.

My Mum did this in the early 1990s. By the time she died a few years later her £8000 loan had risen to £18000. My brother (who lived with her) had to get a mortgage to pay the debt, or he would have been homeless. None of us knew she had taken the loan out - we would have willingly given her the money.

@oldandscunnered

She might be able to get another lifetime mortgage on the new house. I would seek advise straight away. I work in conveyancing (Scotland) and I have seen this done often. As an aside you always have to take the advice of a solicitor before you sign off on an Equity Release Mortgage so your mum would have been well aware of the consequences when she signed up. There are different types of equity release where you actually pay the mortgage and they are not as brutal but your mum has effectively borrowed £16,000 and never paid anything back.

You can often move the equity release if you choose to move home. I’m guessing that flexibility is more with later products. Obviously that depends on the equity in the new house - if there’s too high a risk that it won’t be worth enough to cover the loan, the lender won’t allow it.

The OP mentioned Sheltered Housing; which is an interesting one. A lot of equity release lenders won’t touch these with barge pole! There was a thread on here not long ago actually, where someone’s parent had died and they had inherited the retirement village property, had massive charges to pay, and couldn’t sell it for enough to cover the mortgage owed. In a market where we used to thinking prices rise, retirement properties are much easier certain. There are plenty of mis-selling cries about that, too!

Equity release should only have been sold in 1999 after independent legal advice and that should have included all scenarios and usually required people to tell anyone who would expect to inherit. So she may have a case for mis-selling unless the company followed SHIP standards. The Financial Services Ombudsman Service are helpful and have the power to cancel the loan if it was mis-sold. If it was sold to your mum when she was under 65 it was probably mis-sold.

@titchy

I'd argue the £30k penalty for paying it off could be misselling. No knowledge of experience, but if the charge is payable upon selling the house to go into supported housing, then given the product is for an elderly person this should be treated as the same as selling to cover care costs which as I understand doesn't incur the charge.

The £100k obvs needs to be replayed, but I think you should argue about the additional £30k.

I agree that £30K seems incredibly high when it’s so long after the initial loan, so I’d definitely challenge that.

I do understand why it isn’t treated the same as moving to a care home though. My friend’s grandmother just moved into “Sheltered Housing”. It’s a very fancy and very expensive McCarthy Stone retirement flat. The only thing “sheltered” about it is a pull cord in the bathroom and a warden on site. Back up “just in case” measures - but that’s not why she’s there. She wanted the brand new modern flat and the social side! There is no element of actual personal care at all. So I can see why the lender would be very specific about what is and isn’t “moving for care”.

Do look carefully into the cost of sheltered accommodation. Sheltered housing can devalue considerably, partly because even if privately owned there are huge monthly fees for services. These fees must be paid even if the property is vacant, ie after death of owner. Your mum might not want to buy, even if she could afford to - or it might turn out she could make a low offer on a property as so many people are stuck with accommodation they can't sell.

www.thisismoney.co.uk/money/news/article-10182583/The-retirement-home-scandal-wiping-life-savings.html

Alternatively, could she rent out her home and then rent sheltered housing?

The only way out of this, is to apply for funding, through social services to go into a care home. She won't get a choice, just a local council run one.

@DaisyNGO

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

Hopefully her plan included a no negative equity guarantee which means she won’t have to pay back more than her property is worth! Although I only know this to be guaranteed nowadays not sure what the ‘perks’ were all those years ago!

It must have come as a horrible shock to you OP, but I do agree with those saying that, just because someone has made a choice which hasn't worked out as they had liked, doesn't mean it was mis sold.
@Cocomarine has made lots of excellent posts.
Equity release shouldn't be entered into without a lot of thought and weighing up how much you want the cash then vs how much you pay for it, taking into account how long you think you will live, and if you want to leave anything to family etc, but that was the case back then too, and OP's Mum was hardly of an age where there was a likelihood of her being doddery or vulnerable at that point.
Everyone should always do as much research as they can before signing any big financial contract, if anyone doesn't, it is their choice not to and doesn't make the people offering the contract dodgy.

I had no idea that equity release could be as little as 16k!! That’s just blown my mind. I thought the elderly were getting the price of their hole basically released to them slowly and then eventually the lender gets the home. I didn’t realise they could end up with a hole for 16k!!!

Home 🙄

@FreeBritnee

I had no idea that equity release could be as little as 16k!! That’s just blown my mind. I thought the elderly were getting the price of their hole basically released to them slowly and then eventually the lender gets the home. I didn’t realise they could end up with a hole for 16k!!!

@FreeBritnee who would offer that though?

House is worth £50K in 1999.
Lender gives you £2.5K a year for 20 years, and doesn’t charge you rent for being in “their” property.
By 2019 you’ve had your £50K - what the house was valued at in 1999.
So now the lender takes your house.
Which now is with £150K (Halifax report in 2020 gave a figure of house prices tripling in those 20 years)

Do you think people would think that was fair?

The thing with equity release, is the longer you live, the more it costs you. So in the swings and roundabouts of life, you’ve won on longevity!

@FreeBritnee

It was £16k in 1999. House prices were much lower than they are now. We also have no idea where this house is or what condition it's in.

It looks like a bad decision now but at the time it obviously worked for her. A lot of people have no income and no cash to do "all the things they've always wanted to do" but haven't because of work and kids.
They retire and have free time, are aware that they won't be around forever and take the cash to go on a cruise, buy a nice car, pay off a mortgage, pay for maybe a private medial procedure, build a downstairs loo.
They don't need a house when they're dead so it makes sense. It's not good for the heirs though. And often that's the thing.

@TeaAndStrumpets

My Mum did this in the early 1990s. By the time she died a few years later her £8000 loan had risen to £18000. My brother (who lived with her) had to get a mortgage to pay the debt, or he would have been homeless. None of us knew she had taken the loan out - we would have willingly given her the money.

That's odd as your brother lived with her.

The mortgage company would have needed to know that

I'm a mortgage broker depending on her loan to value needed on sheltered accommodation she could possibly look to remortgage to one of the other lifetime mortgage companies and repay and purchase that way.

Sadly this story is all too common at 63 clients are adamant they will never move to sheltered accommodation and their house will be perfect forever. It isn't always the case as you find out 22 years later.

If she can manage in a normal bungalow closed to amenities that may help and be acceptable to the existing lender

Thanks, lots of interesting points of view here! I do think she has to take the 100k on the chin since she signed up to the scheme, but I do still think it is a greedy financial product that exploits people's inability to imagine that they will have care needs one day! The problem for us is that if she needs proper nursing care then yes, the early repayment penalty is waived and she only owes the 100k; however, she isn't quite that bad yet, she can just about live independently (with support from me and care worker.) This means that if she wants to sell up and move somewhere that will be able to support her when things do get worse, then she will have to pay the penalty. Having checked again, I've calculated it is getting close to an extra 40K! So, back to my biggest annoyance which is that she won't have enough left to actually buy an apartment!

Have you triple checked the wording on the early repayment penalty? They normally only apply in the early few years of the policy, rather than 20+ years later.

What is the measure/threshold required to meet the "nursing care" requirement to have the charge waived, is the definition specifically requiring nursing care, or just unable to live independently?

@MatildaIThink Yes have checked it and spoken to mortgage company's customer services. The penalty expires after 28 years which is another 7 years. The nursing care threshold is based on 'Activities of daily living' guidelines and so includes things like the person's ability to wash/feed/move themself. She can currently just about do these things, but we are aware that one day soon she is going to wake up and not be able to get herself out of bed and/or walk anymore. Just wanted to preempt that and get her in somewhere first.

@Cocomarine talks such a lot of sense.

The main problem I see is that it was all done quietly- some families are so hush hush about financial issues and I don't know why, as the secretive way decisions are made causes such headaches further down the line.

This is exactly why people should have a second and third pair of eyes over financial transactions. Be it a good IFA or family member etc.