Equity release mortgage

C

CUJimmy

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I have been approached by a friend of mine who's elderly parents took one of those equity release mortgages at the height of the property bubble. The facts are a bit sketchy but his parents (one of whom is critically Ill) are now concerned that the vastly reduced value of their property will mean that the mortgage company will virtually own the property in full when the debt comes to be realised.

Does anyone know if this is the case or does the lender take on some of the loss in the value of the property?
 
Its impossible to know without more information.
There were a number of different products with different rules. Some stated that a percentage of the sale price goes to the mortgage provider and some a stated amount.

Best to ask the parents for the original documentation and read it carefully.
 
Hi Jimmy

There were two main products aimed at elderly people.

One was the Bank of Ireland Life Loan, where they lent money at a fixed rate of 6%. It is like any other loan except that the interest is rolled up every year. They did not buy a share of the house, they simply lent money. The property will be sold when the parents go into a nursing home or die. The proceeds will be used to repay the loan. If, there is anything left over, the estate will get it. I think that the product was designed in such a way that if the loan exceeds the proceeds, the shortfall is written off so the estate won't have any furthe liability.

The more popular scheme was a Home Loan Reversion Scheme where the company actually bought a share in the home e.g. 20%. When the house is sold, the company will get 20% of the proceeds. The owners or their estate get the 80%. So these companies do suffer from the decline in value of the property as they actually bought a bit of the property.

But as huskerdu says - check out the contract.

Brendan
 
@Cujimmy

There were two basic types of product - a loan which was either fixed or variable and there will be a letter of offer and documentation to support that. The other was a sale of a percentage of the property.

The loan - if at height of market, the extraction would have been max say 30% of say a €200k property - loan say €60k. That might be now €85k. If property is worth more than €85k then Bank gets €85k. If less - bank takes loss.

The other product was where one sold say 60% of the house - last example value €120k but they would have got half that €60k (for every euro of sale value you got less than 50c for it). If sold now property is say €100k then they get 60% - €60k. However if propery % was sold before the peak then to get the same €60k you may have had to sell a higher percentage of house maybe 80% and thus the Reversion Company would get €80k
 
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