Elderly caught in debt trap by home loans from boom
Published 16/01/2016 | 02:30
Thousands of elderly people are facing a massive debt time bomb on their homes after taking out equity release products.
The high costs of the specialised mortgages are forcing the sale of homes and wiping out inheritances.
No repayments are made on equity release products taken out by older people, which means huge debts have now built up. The money is due when the owner dies, or the house is sold.
But many families are now finding that the amount owed leaves them with nothing when the homes are sold, wiping out inheritances.
At least 3,000 people owe a total of €300m on equity release loans, according to Central Bank figures.
Equity in the homes was released when house prices were high. The average amount now owed works out at €100,000. In many cases, this is double the amount originally borrowed.
Equity release for older people is a way of retaining use of a house while also getting a lump sum, using the value of the house.
The catch with the versions aimed at older people is that they must be repaid at a later stage, usually at death. No repayments are made during the term of the equity release mortgage. But, crucially, this means compounded interest is added to the capital throughout the term of the loan.
Property prices are a third lower than at their highest level in early 2007. The expectation when the deals were done in 2000 to 2010 was that property prices would keep rising.
However, if the home is now worth less than was borrowed on it, the lender takes the hit.
Figures obtained by Fianna Fáil finance spokesman, Michael McGrath, from the Central Bank show that there are 3,100 customers with 'life-loan', or equity release-type loans.
He was told by the bank that €300m is owed on these products. Many of these people may be unaware of the liabilities they were accumulating.
"Customers who took out a so-called 'life loan' need to be vigilant as to the liability they are accumulating, and to take steps to address the issue if necessary," he said.
He said he was "staggered" at the costs when he looked at the details after being contacted by a number of people.
Founder of Askaboutmoney.com, Brendan Burgess, defended the products, but said: "Banks would be put off reintroducing them due to negative publicity."
Bank of Ireland, one of the largest issuers of equity release mortgages to older people, said: "Life loans enabled people to raise finance without having to trade down or move home, with no repayments until the property was sold. Bank of Ireland sold life loan products between 2001 and 2010 in accordance with regulatory requirements."
'Even if we sell the house, there will be nothing left'
Orla Nolan is warning fellow consumers about the costs of equity release products.
The Dublin woman outlined how her 90-year-old mother is facing a €300,000 debt after taking out an equity-release loan for €165,000 from Bank of Ireland in 2005.
The bank charges an interest rate of 6.5pc a year.
Ms Nolan said the Life Loan had seen the amount owed on her mother's home double to €300,000 in just over 10 years.
She has appealed to Bank of Ireland to do a deal with her, but says the bank will not respond.
Ms Nolan said: "Due to a difficult situation, mum took out a Life Loan in 2005 with the Bank of Ireland for €165,000. Today we are now trying to sell her house but to date have had no success.
"Today the loan is €300,000-plus," she said.
Her mother is not in the house any more, and is now living with her family and requires continuous care.
"Even if we sell the house at this stage there will be quite possibly nothing left," she said
She wants Bank of Ireland to do a deal with her.
"I have made numerous attempts and requests to the Bank of Ireland to freeze the interest which is at a compound of 6.5pc and is punitive," she added. "The bank will not negotiate, they have more than got their money back at this stage."
Repaying the loan before her mother dies will trigger a €18,000 "break-out" charge, as the loan is fixed at 6.5pc for 15 years.
Asked about Ms Nolan's situation, Bank of Ireland said it would not comment on customer cases.