My mother in law was persuaded 12 years ago to take out a loan of £30,000 against her house at 1% above base. This sum was then put into a Unit Trust to provide an income of about £800 - £1000 p.a. (The compulsory insurance was £560 p.a.!!) She was required to pay nothing back over the years and her debt against the house is now £89,000. As this figure now exceeds 75% of the house value she is being asked to pay off her 'mortgage' at £500 per month, no chance. We believe that she was a victim of mis-selling. Are there any other published examples of cases like this that we can study to help her? Also is there a calculator I can use to check the interest rate used?

-- Rob Sowerby (Rob@sowerby.freeserve.co.uk), September 01, 2001

Answers

From what I understand about Equity Release, its just another word for mortgage. With some lenders you don't pay a penny back, when you die, they get their loan, plus interest back from the sale of the property. With other lenders, you make repayments back to them, just like a mortgage but with a higher interest rate.

Ask your mother-in-law for the paperwork regarding the loan, or get copies from the lender. The contract should mention what would happen if the loan reached a certain level.

I don't know if there have been problems with equity release programmes but you may find further information at your local CAB or if you can afford to, see a solicitor. Even an Independent Financial Adviser might be able to explain the detail and maybe a solution to your mother-in-law's problem.

-- pendle (pendle_666@yahoo.co.uk), September 01, 2001.

Rob These loans were really a big scandal in the 1980/90's. There are many examples of mis-selling and there is every possibility that you were mis-lead. I have a mental block at the moment on the lenders invloved. When I recall, I will post another reply (who is the lender in your mother's case?). What I can say is that the Daily Mail +/or Mail on Sunday (and other media probably); ran a very sustained campign and expose on this. A lot of money was paid out in restitution and clearly, there are still some to come to light. Your mother was advised after the Financial Services Act came into force, so you can lodge a complaint with the Personal Investment Authority. In the first instance however, it may be a good idea to formally complain to the lender, Financial Adviser (who originally sold the plan), and the Unit Trust company. They have to investigate and will need to supply you with evidence of best advice at the time of sale. This will include (but not limited to) copies of the Fact Find (a searching questionnaire that revealed all your mother's financial details to enable proper professional advice to be given), written confirmation of the proposition, and evidence that your mother was advised to take independent legal advice (particularly if she was elderly or infirm at the time). Watch out for extraordinary projected returns on the 30k investment. There were examples of the Unit Trust illustrated to grow at a rate into double percentage points, so the the investment would look as though it would sustain the debt. Any ethical professional adviser knows that this can not happen; and is a dangerous assumption where someone's home is at risk. You are also in a strong position to get them to consider this as a matter of extreme urgency in view of your mother's age and the fact that this may be causing her some distress. Get yourself some professional help on this Rob. A first step may be the PIA who I believe may give some guidance on how to complain. Remember, this is another of the really big financial scandals that came to light in the last 10 years. The others being pensions and endowment mis-selling. The institutions that sold these are very much on the back foot when trying to defend these. Most of them have had to pay substial fines in addition to making payments to correct THEIR bad practise; and rightly so. Good luck. George

-- George Matthews (george@gmatthews22.fsnet.co.uk), September 02, 2001.

Thanks for your advice so far. The Building Society involved was Town & Country who are now part of the Woolwich. I'm not certain who the Unit Trust was provided by but I will find out. Using a rough calculation that I devised on Excel it appears that the average interest over the period is 9.4% but I may have buggered it up.

-- Rob Sowerby (Rob@sowerby.freeserve.co.uk), September 02, 2001.