Shared appreciation mortgages
Discussion
https://www.bbc.co.uk/news/uk-england-nottinghamsh...
It seems they are gaining more and more publicity, I thought they had to get legal advice before they took out these mortgages?
It seems they are gaining more and more publicity, I thought they had to get legal advice before they took out these mortgages?
Puzzles said:
https://www.bbc.co.uk/news/uk-england-nottinghamsh...
It seems they are gaining more and more publicity, I thought they had to get legal advice before they took out these mortgages?
In the 90's there was no regulation of the mortgage industry, there was no FCA, there was no ombudsman and no formal qualifications were needed to give mortgage advice.It seems they are gaining more and more publicity, I thought they had to get legal advice before they took out these mortgages?
Stories like this, endowment and PPI mis-selling are the reasons why the mortgage industry is the most heavily regulation industry in the UK now.......
Are these actually as a bad a deal as they’re being made out in pure financial terms?
£18k borrowed for 25 years with no repayments @ 10% per annum interest compounds up to £177k after 25 years.
My Dad settled an equity release after my grandparents passed last year - £112k for a £14k advance, term was just over 20 years. My Dad and one of his brothers could have given them £7k each if they’d asked - but they didn’t because “it would have caused friction with their wills”. As it was they all 7 children ended up with next to nothing anyway.
The underlying issue with all these sorts of products is they’re largely taken for overly emotional/sentimental reasons. If you borrow money with no repayments for an indeterminate period of time it’s going to cost you a lot of money. Most of the complaining about these is from relatives of the people who took them out who weren’t properly aware - that’s not the banks fault.
Mis-selling is probably the most misused term in the dictionary. Mis-selling is advising a customer to take a product that does not fulfil their stated requirements. These products absolutely fulfil the requirement to borrow money, not have to make any repayments and kick the can down the road until you either have to sell my house or die. That they were a guaranteed profit centre and minimal long term risk to banks does not amount to mis-selling, for me anyway.
£18k borrowed for 25 years with no repayments @ 10% per annum interest compounds up to £177k after 25 years.
My Dad settled an equity release after my grandparents passed last year - £112k for a £14k advance, term was just over 20 years. My Dad and one of his brothers could have given them £7k each if they’d asked - but they didn’t because “it would have caused friction with their wills”. As it was they all 7 children ended up with next to nothing anyway.
The underlying issue with all these sorts of products is they’re largely taken for overly emotional/sentimental reasons. If you borrow money with no repayments for an indeterminate period of time it’s going to cost you a lot of money. Most of the complaining about these is from relatives of the people who took them out who weren’t properly aware - that’s not the banks fault.
Mis-selling is probably the most misused term in the dictionary. Mis-selling is advising a customer to take a product that does not fulfil their stated requirements. These products absolutely fulfil the requirement to borrow money, not have to make any repayments and kick the can down the road until you either have to sell my house or die. That they were a guaranteed profit centre and minimal long term risk to banks does not amount to mis-selling, for me anyway.
Alex Z said:
It could be misselling if they didn’t ensure that the customers understood the financial implications of the equity release.
I wonder what the situation would have been if the house fell in value? Would there be a clause that protects the original loan amount anyway?
The clue is in the title of the product, Shared "Appreciation" Mortgage......the original principle would alway been protected.I wonder what the situation would have been if the house fell in value? Would there be a clause that protects the original loan amount anyway?
It's not misselling if the clients doesn't understand the financial implications of a product. It's miselling if you deliberately and knowingly sell a product to a client knowing it's not fit for the purpose that the client requires. Eg selling someone a PPI policy knowing it will never pay out for their occupation type.........
It’s a tricky one. I’m minded to think a lot of the current noise is sour grapes from younger relatives who don’t like seeing their inheritance disappear. But I also think it’s possible the bank took advantage.
On the one hand - these were loans for an indeterminate time with no interest; the “interest” was a share of uncertain and variable future capital gain a long way in the future. There was risk both ways, and these were adults signing a contract that was pretty clear on its terms.
On the other, the mortgage market in the 90s was deeply unregulated and full of bad incentives to sell improper products all over the place. We cannot trust that customers were properly informed, or not misled.
On the one hand - these were loans for an indeterminate time with no interest; the “interest” was a share of uncertain and variable future capital gain a long way in the future. There was risk both ways, and these were adults signing a contract that was pretty clear on its terms.
On the other, the mortgage market in the 90s was deeply unregulated and full of bad incentives to sell improper products all over the place. We cannot trust that customers were properly informed, or not misled.
I think the buyers remorse set in with these things a long time after they were taken out in most cases.
The money was often used for relatively frivolous reasons - I know my GP’s spent all of their equity release money on holidays to Las Vegas for example, but cars and new kitchens are frequently mentioned.
20 years later looking back knowing that you’ve given away 2/3rds of the value of your house and those holidays didn’t really cost you £14k, it was actually well north of £100k changes your frame of reference and it doesn’t feel like value for money any more - you’ve shed a lot of your net worth.
Having a play with Nationwide price index, a property in the North West worth £260k today would have been worth around £71.5k in 1998 and £15k in 1978 - so about 4.75x increase in value over 20 years from 78-98, so it’s not like a prolonged period of house price inflation was alien to these borrowers. Perhaps none of them expected to live 20+ years - I suspect this was the case for my Grandparents, both of whom realised they only had a couple of years left to travel due to failing health and wanted to make to most of it. They did have to give up travelling, but they lived another 19 years in their home afterwards.
The money was often used for relatively frivolous reasons - I know my GP’s spent all of their equity release money on holidays to Las Vegas for example, but cars and new kitchens are frequently mentioned.
20 years later looking back knowing that you’ve given away 2/3rds of the value of your house and those holidays didn’t really cost you £14k, it was actually well north of £100k changes your frame of reference and it doesn’t feel like value for money any more - you’ve shed a lot of your net worth.
Having a play with Nationwide price index, a property in the North West worth £260k today would have been worth around £71.5k in 1998 and £15k in 1978 - so about 4.75x increase in value over 20 years from 78-98, so it’s not like a prolonged period of house price inflation was alien to these borrowers. Perhaps none of them expected to live 20+ years - I suspect this was the case for my Grandparents, both of whom realised they only had a couple of years left to travel due to failing health and wanted to make to most of it. They did have to give up travelling, but they lived another 19 years in their home afterwards.
Sarnie said:
Alex Z said:
It could be misselling if they didn’t ensure that the customers understood the financial implications of the equity release.
I wonder what the situation would have been if the house fell in value? Would there be a clause that protects the original loan amount anyway?
The clue is in the title of the product, Shared "Appreciation" Mortgage......the original principle would alway been protected.I wonder what the situation would have been if the house fell in value? Would there be a clause that protects the original loan amount anyway?
It's not misselling if the clients doesn't understand the financial implications of a product. It's miselling if you deliberately and knowingly sell a product to a client knowing it's not fit for the purpose that the client requires. Eg selling someone a PPI policy knowing it will never pay out for their occupation type.........
As well as advising they told their families
brickwall said:
On the one hand - these were loans for an indeterminate time with no interest; the “interest” was a share of uncertain and variable future capital gain a long way in the future. There was risk both ways, and these were adults signing a contract that was pretty clear on its terms.
Yep, I agree. Also the loans were redeemed when the person died or moved into a home, and was only given to over 60's. Most will have already died, and paid far less interest. This is the bit which amazed me...
BBC said:
After they paid off the mortgage, Kevin took out a SAM in 1998 to borrow £19,000.
The house was worth £76,000 at the time but is now thought to be worth about £450,000.
The price of their house has gone up nearly 600% in 25 years!! No wonder the younger generation are fThe house was worth £76,000 at the time but is now thought to be worth about £450,000.
ked trying to get on the housing ladder. hidetheelephants said:
Given the people who took out the loans mentioned in the article regarded it as a matter of shame and hid it from relatives suggests they may have felt they were stitched up by some shiny suited prick.
Of course the shame and obfuscation of the loan from their family could equally be attributed to the fact they needed a loan and one of this type was the only one available to them. AndyAudi said:
When I looked at this a couple of weeks back, it was a requirement that individuals sought independent legal advice who confirmed the details had been explained & understood….
As well as advising they told their families
Yes, thats the benefit of regulation, in 2023, which wasn't in place in 1998.As well as advising they told their families
I thought it was 25% of the value of the house they owed, so it is actually 75% of the increase in value of the property?
I guess the big issue here is that nobody signing these contracts had any idea of the massive increase in house prices that was about to start.
I suspect these people wouldn't have been so upset if prices had only marginally increased in the last 25 years.
I guess the big issue here is that nobody signing these contracts had any idea of the massive increase in house prices that was about to start.
I suspect these people wouldn't have been so upset if prices had only marginally increased in the last 25 years.
Edited by anonymous-user on Tuesday 24th October 10:42
Joey Deacon said:
I thought it was 25% of the value of the house they owed, so it is actually 75% of the increase in value of the property?
I guess the big issue here is that nobody signing these contracts had any idea of the massive increase in house prices that was about to start.
I suspect these people wouldn't have been so upset if prices had only marginally increased in the last 25 years.
Correct, and the late 90's came after a significant period of extremely high mortgage rates, a depressed property market and high unemployment.........I guess the big issue here is that nobody signing these contracts had any idea of the massive increase in house prices that was about to start.
I suspect these people wouldn't have been so upset if prices had only marginally increased in the last 25 years.
Edited by Joey Deacon on Tuesday 24th October 10:42
brickwall said:
It’s a tricky one. I’m minded to think a lot of the current noise is sour grapes from younger relatives who don’t like seeing their inheritance disappear. But I also think it’s possible the bank took advantage.
I used to do a lot of work for a client whose business included equity release lending and the great majority of the complaints they received were from relations who had recently discovered they weren't going to have as big a payday on the death of their parents as they hoped. All very easily dealt with as all the client's customers had taken financial and legal advice and been strongly encouraged to talk to their families about what they were up to (not that it's any of their business really). I struggle to see what the big scandal is here. Yes it has turned out to be a good deal for the lenders thanks to the rampant house price inflation over the last few decades. But if it had turned out to be a bad deal for the lenders that would have been because there had been very little house price inflation, and the people complaining would probably still be facing the same financial woes. There's a solicitor in the article talking about 'information asymmetries' - essentially trying to argue that because the banks had better access to economic modelling than their customers that they knew exactly what was going to happen and thus it was 'unfair'. But A) that's always going to be the case, because yes banks do spend a lot of time and money developing economic projections - it's part of their job. If that alone makes a deal with them 'unfair' then nobody could ever do any business with them, and B) even so, to suggest that the banks could chart the course of house prices two and a half decades into the future is bonkers.
If it can be shown that the lenders did somehow hoodwink the borrowers such that they didn't know what they were signing up to then sure, throw the book at them (but note that it's not enough to say 'It was the 90s, everybody was a crook back then'). But as it is it looks a lot like grasping relatives disappointed that they might have to carry on actually working for a living for a bit longer.
Roger Irrelevant said:
But as it is it looks a lot like grasping relatives disappointed that they might have to carry on actually working for a living for a bit longer.
I think this is the case, I am sure the parent's were quite happy to spend the money on an Avocado bathroom suite, a Ford Fiesta and a couple of holidays to the canaries.Then when it comes to their parents dying, the children find out that their parents signed up to a loan which means 75% of the increase in the value of the property goes to the bank who lent them their parents the money.
Cue sad Daily Mail compo face and "Dad didn't know what he was signing. We only buried him last week and now the bank are trying to take the house away from me"
Obviously they want someone else to pay, forgetting that their parents enjoyed this money 25 years ago and it is all gone.
Roger Irrelevant said:
brickwall said:
It’s a tricky one. I’m minded to think a lot of the current noise is sour grapes from younger relatives who don’t like seeing their inheritance disappear. But I also think it’s possible the bank took advantage.
I used to do a lot of work for a client whose business included equity release lending and the great majority of the complaints they received were from relations who had recently discovered they weren't going to have as big a payday on the death of their parents as they hoped. All very easily dealt with as all the client's customers had taken financial and legal advice and been strongly encouraged to talk to their families about what they were up to (not that it's any of their business really). I struggle to see what the big scandal is here. Yes it has turned out to be a good deal for the lenders thanks to the rampant house price inflation over the last few decades. But if it had turned out to be a bad deal for the lenders that would have been because there had been very little house price inflation, and the people complaining would probably still be facing the same financial woes. There's a solicitor in the article talking about 'information asymmetries' - essentially trying to argue that because the banks had better access to economic modelling than their customers that they knew exactly what was going to happen and thus it was 'unfair'. But A) that's always going to be the case, because yes banks do spend a lot of time and money developing economic projections - it's part of their job. If that alone makes a deal with them 'unfair' then nobody could ever do any business with them, and B) even so, to suggest that the banks could chart the course of house prices two and a half decades into the future is bonkers.
If it can be shown that the lenders did somehow hoodwink the borrowers such that they didn't know what they were signing up to then sure, throw the book at them (but note that it's not enough to say 'It was the 90s, everybody was a crook back then'). But as it is it looks a lot like grasping relatives disappointed that they might have to carry on actually working for a living for a bit longer.
The bit I’ve bolded in your post I think is very relevant.
It’s eminently possible that there are some outlier cases where a customer was mis-sold the product. And it’s also possible that those cases are disproportionately likely to make their way to the press.
And in such an instance of mis-selling then yes absolutely throw the book at the bank. But it has to be actual mis-selling and not buyers remorse in disguise. A compo face in the Daily Mail with a general “oh well no-one ever thought it would be such a big bill” simply won’t cut it.
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