Equity Release Schemes Can Create Unusual Problems

Equity release schemes for the elderly are becoming a popular venture for both home owners and mortgage brokers.

Many elderly home owners are choosing to release equity from their property in order to be able to move into smaller, more manageable accommodation in a process known as downsizing.

As this process is becoming more popular, many mortgage lenders are keen to create mortgage packages to attract this lucrative market.

Recently Norwich Union has introduced two specifically designed mortgage packages, in conjunction with the company Move With US; an ‘all in one’ mortgage package which covers all aspects of moving, from legal fees to surveying.

They are also piloting a scheme which allows home owners to receive 80% of their property’s sale price and the rest of the proceeds are used to cover costs from the mortgage broker.

Anthony Rafferty, Norwich Union’s representative on these schemes thinks the schemes are a good idea as, he says: “Our aim is to remove all the stress from the sales process while enabling retirees to free up cash.”

However, mortgage brokers are discovering to their cost and embarrassment that not all elderly mortgage schemes are straightforward. Recently two cases were reported of elderly couples remarrying but keeping the same mortgage agreement.

In both cases, the person on the mortgage contract has remarried and subsequently died, leaving their spouse living in the property - and leaving the mortgage lender a huge dilemma.

Due to a loophole in mortgage contracts the new spouse was not able to be put on the contract, yet were living in a property which, in the mortgage lender’s eyes, did not belong to them.

Although the mortgage lender does have the right to evict the pensioners, HBOS seems unwilling to damage their public perception by doing so as they have not offered either borrower the option of adding the new name to the mortgage.

Luckily for the pensioners concerned HBOS seems unwilling to damage its reputation and lose their slice in the billion pound equity release market through ruthlessness.