Moneymakeover Irish Times: "Life loan proves a millstone for 97 year old"

Brendan Burgess

Brendan Burgess

Founder
Messages
58,469
www.irishtimes.com

Life loan proves a millstone for 97-year-old pensioner

How did a pensioner borrow €130,000 only to leave €100,000 of it on deposit losing money for 25 years?
www.irishtimes.com www.irishtimes.com

In 2003 when this single woman was 72, "received correspondence from BoI offering her a life loan"
She took legal advice - (it was a mortgage so of course she did)
She borrowed €130k
She spend €30k
She put €100k back on deposit with BoI.
She now owes €455k

Her nieces and nephews are outraged.
BoI won't negotiate.
She has taken a case to the FSPO
The FSPO has told a 97 year old that it will take 12 to 14 months to appoint an investigator.
 
I don't see how it's a millstone for the borrower? She still has her house and has €100k in the bank.

Of course, it's stupid to borrow €100k and put it back on deposit.

But there is no explanation of why she did this.
There is no explanation of what she did with the €30k

The first alarm is that, as you tell it, she never proactively sought this loan; instead, she was simply targeted with marketing material by the bank.
Click to expand...

So the bank should not market their products?
The Irish Times advertises on the radio. I get flyers in the door advertising the subscription to the Irish Times.

Over the weekend I met a 75 year old who is taking in lodgers to make ends meet. I asked him if he had heard of Spry and he had not. It could have been very useful for him had he been notified about Spry a few years ago.
 
The article is behind a paywall for me, but I'm interested in the numbers.

Does she owe 455k in total i.e. the 130k has grown to 455k?

Or does she owe 455k, net of whatever the 100k on deposit has grown to i.e. say, 130k borrowed has compounded to 700k, and the 100k on deposit has grown to 245k, with the difference being 455k...?
 
Did she not make any repayments on the €130k she borrowed?
Or miss half of them or something… not sure how the numbers work. Must have been something amiss for it to grow at that rate.
If not why did the bank let that sit for 25 years? Or have they been writing to her and been ignored? She was only 72 when she borrowed the money.
 
torblednam said:
Does she owe 455k in total i.e. the 130k has grown to 455k?

Or does she owe 455k, net of whatever the 100k on deposit has grown to i.e. say, 130k borrowed has compounded to 700k, and the 100k on deposit has grown to 245k, with the difference being 455k...?
Click to expand...
According to the article:
As of June this year, the total amount required to close the account was a staggering €455,081.
Click to expand...
 
Annieindublin said:
Did she not make any repayments on the €130k she borrowed?
Click to expand...
No repayments are normally made on a life loan. The loan is normally repaid after death from the proceeds of the sale of the property.

As mentioned in the article some of these loans also have a negative equity guarantee such that if the sale of the property doesn't cover the outstanding loan amount then the lender doesn't chase the estate for the shortfall. That could be a great deal in some circumstances. But would probably be unusual if only 20% LTV can be borrowed at the outset.
 
Last edited:
Brendan Burgess said:
So the bank should not market their products?
Click to expand...
There's marketing, and then there's mis-selling.

Even in 2003, the late middle ages, the sellers of financial products did have certain obligations towards their customers. While this woman did take independent legal advice, that's not the same thing as financial advice. Surely the Bank had an obligation to know their customer's circumstances, to understand her investment objectives and her reasons for entering into the transaction, and to satisfy themselves that the product the were selling her was the right product?

The fact that she borrowed €130,000 and immediately put €100k on deposit is a huge red flag. Once she had a line of credit approved, her ready access to funds if she needed them was established. It's almost impossible to think of any plausible investment objective this woman could have had that would make "draw down borrowings of €100k, secured against your house, put them on deposit, and leave them there" a sound strategy for her to adopt.

So, yeah, there are serious questions to be asked here, and I think the answers are likely to embarrass the Bank.

Torbledanm — my reading of the article is:
- the amount needed to clear the loan account is €455,081
- we're not told what the €100k deposit has accumulated to.

The fact that she's told — 6 months after a complaint was made — that she has to wait a further 12 to 14 months before the FSPO will allocate an investigator to the matter is a whole other problem. Obviously, for a 97-year old, there's a sporting chance that she will not live to see this problem resolved. But for a person of any age to have to wait 18 to 20 months, while interest on a near half-a-million debt continues to be accumulated, is not acceptable. Clearly, either FSPO is very inefficient or it is woefully under-resourced (or a bit of both, I suppose).

To the extent that the problem is one of resources, it's easily solved. FSPO is funded by a levy by the financial service providers and pension providers. Clearly, we need a fit-for-purpose Ombudsman service, and if the FSPO doesn't have the resources to provide one then an increase in the levy looks like a no-brainer.
 
Whatever about Bank of Ireland mis-selling this loan, there are questions about the advice any legal practitioner gave this woman back in 2003.
Click to expand...
Solicitors are not financial advisors. Some may give an opinion on the financial aspects of such a case unofficially/off the record but their primary job here is to advise on and deal with the legal issues involved in remortgaging the property. But the Irish Times (and maybe the family?) seem to want to blame the solicitor here too?
So what “advice” the solicitor provided, I have no idea. I can see them saying they advised only on the legal and contractual issues rather than the wisdom of taking the loan but that seems a very narrow and unhelpful interpretation of their role.
Click to expand...
I've had dealings with my solicitor that involved significant financial and tax issues. They sometimes have an unofficial comment on them but made it clear that they were not in a position to offer financial/tax advice.
 
Last edited:
Annieindublin said:
Did she not make any repayments on the €130k she borrowed?
Click to expand...
That's the whole idea. The life loan is aimed at someone who:
- has limited income
- has a need for spending which the income will not cover, and
- has a valuable asset which can secure a loan, and from the proceeds of which a loan can eventually be repaid.

Such a person wouldn't normally be able to make any repayments, and wouldn't be expected to. Interest rolls up until the asset is sold, and the proceeeds of sale are then used to clear the loan and accumulated interest.
 
maybe 25 years is too long for a life loan.

I asked AI… looks like the rate was about 5%…. I’ve lost track of interest rates over the past 25 years but that’s not looking too unreasonable.

Meanwhile the deposit will have grown at a much slower rate. Looks like the difference will be around 200k…

Ok she didn’t use the cash but that’s not looking too unreasonable overall.

But it does need addressing and the bank should have avoided this hitting the papers by responding to the family. Maybe they did..
 
torblednam said:
The article is behind a paywall for me, but I'm interested in the numbers.
Click to expand...
Here is the relevant bit:

in 2003, when she was 72, a single woman with no children received correspondence from Bank of Ireland offering her a life loan. Having taken legal advice (she never discussed this advice with anyone), she took out a life loan of €130,000.

She actually only needed €30,000 at the time, so she put €100,000 back on deposit with Bank of Ireland, where it has remained ever since. (It is not clear why she took out €130,000 when she only needed €30,000.)

As of June this year, the total amount required to close the account was a staggering €455,081. The woman is now 97.
 
Brendan Burgess said:
Of course, it's stupid to borrow €100k and put it back on deposit.

But there is no explanation of why she did this.
There is no explanation of what she did with the €30k
Click to expand...
You see stupid, I see miss selling, hard sell to a widow in her 70's who did not need the money. I wonder how much commission the bank staff got for selling it. And of course there will be no records of what transpired in her meetings with the bank, no details on how many times when she went into the bank she was cajoled into what a brilliant product this was for her needs. Clearly there was no need, or if there was, it was for 30K max.

In addition to their being no records, the staff member is probably long gone.
 
If I was the banks PR officer I’d be asking for a report on any other accounts likely to hit the papers.

My mother (90) has an attachment to having money available in case of a rainy day so I can see how this case could develop. My dad was savvy enough. Mum wasn’t and isn’t.
 
€130,000 @6% for 25 years amounts to €557k
€100,000 @1% for 25 years amounts to €128k

So the net debt could well be €455k

The limit on borrowing was 25% , so let's assume she borrowed the maximum so her home was worth 500k in 2003
Prices have risen by about 80% so her home is now worth about €900k
 
Annieindublin said:
If I was the banks PR officer I’d be asking for a report on any other accounts likely to hit the papers.
Click to expand...

And that is why the mainstream banks don't do this useful product any longer. Because when it comes to repaying the loan after 20 years, the beneficiaries are horrified to find that their elderly aunt had a mortgage and they will be getting a lot less than they expected.

If the media adopted a less sensationalist approach to these, then more banks would provide them and the competition would drive down rates.
 
You must log in or register to reply here.
Back
Top