When your equity loan repayment is not easy to release

YOUR HOME is likely to be your greatest investment and over time may have grown substantially in value. Rather than tie up so much capital, it makes sense for those over 55 years to unlock some money.

The tax-free funds can be used for anything but particularly to help the next generation and cut IHT liability.

Known as equity release, most of the current agreements allow the annual interest to be repaid and a proportion, often up to 10 per cent of the capital borrowed, to be repaid.

Whilst these two such concessions are fundamental to a policy and indeed likely to entice a potential customer, providers are less keen to remind such clauses once a scheme is running and may even delay accepting payments.

FTSE 100 insurer Aviva is a leading provider. This is the same company which dismissed its chief executive last year for failing to energise its shares and attempting to cancel £450m of preference shares at below their market price.

It fails to contact equity release clients ahead of the annual anniversary of the contract to advise the interest that has accrued and invite all or part of that sum to be repaid.

It also does not remind that part of the loan can be reimbursed. Whilst it is not in its financial interests to do so, many may feel it should morally.

Interest is added to the original loan each 12 months, meaning that compound interest boosts the insurer’s coffers.

If a client repays any of the permitted loan or interest by cheque, it may not be cashed and no receipt acknowledged, leaving the policyholder in doubt as to if their funds have been received.

Staff may state that cheques are inadmissible but Aviva only introduced this feature in April.

Providers state they must speak with a client before accepting any payment. Quite whether this is to sell other products or discourage responsible clients who wish to reduce their liability is unclear.