‘Dad’s shame cost us our inheritance’

Equity release loan should not have been kept a secret from family, reader tells Ruby Hinchliffe

Equity release, where people take cash from their homes, has boomed in recent years. But what seems a simple financial product can turn families upside down when the loans are taken out in secret.

“We could have easily lent him around £4,000 a year straight from our own pockets, which would have been £25 a week between my brother, sister and I,” said one Telegraph reader, speaking about his father, who took out an equity release loan.

“That’s what people spend on Pret. We would have barely noticed it and carried on with our lives.”

It was only after a decade that the reader, who wished to remain anonymous, found out that his father had taken out a £100,000 equity release loan in secret – a move that would not have been necessary at all had his father spoken to his family about what was going on.

To their horror, they discovered the interest had rolled up and compounded to £100,000, shaving a third off the value of his parents’ £600,000 bungalow.

“You feel like you’ve let them down, because you could have saved them the interest,” he said.

“It’s their biggest asset, taken by a faceless organisation charging way over average mortgage rates.”

When his father took out the loan, unknown to his children, he was up to the hilt in credit card debt and could no longer borrow money from the bank. His mother, who died in 2020, was also battling with cancer.

“I think they wanted to enjoy their retirement and there was a degree of shame. My father didn’t want to admit it. What was disappointing for us was that parents like ours, who were and still are in a vulnerable situation, aren’t mandated by law to discuss this sort of decision with their family.

“You’ve got families who love each other, but that sometimes get a little bit embarrassed. We’ve never talked about family wealth or income. But our parents helped us and it was our turn to help them. You feel as though somebody has interfered in the family relationship. The loan was far more expensive for the family than it needed to be. There are better ways to lend to the elderly, but at the moment families are being completely excluded.”

He acknowledged there will be people out there who just want to grab their parents’ assets and run. For him and his siblings, it was the principle.

“We should have been in those conversations, as our parents had always stressed the property was to be our inheritance. Between the three of us [siblings], we had assets of around £2m. Yet a rapacious equity release firm was allowed to sign them up.” His father now lives with his sister, who bought the house so they could get rid of all the debt on it.

Equity release is an interest-bearing loan marketed to over-55s in need of some spare cash who do not want to sell their homes. They can choose to pay interest on it from the start, or let it roll up.

Rates are usually higher than regular mortgages: this month, the average equity release rate was 6.57pc.

The average five-year fixed residential mortgage is around 5.24pc, according to Moneyfacts.

Our reader’s father was allowed to let the interest roll up on the loan for more than 12 years. The interest, therefore, compounded, a concept he fears is not explained properly to all equity release customers. In this instance, at the end of the first year the interest payable during that 12-month period was added to the original loan amount.

So in the second year, the total which was bearing interest had grown. This, in essence, is compounding. Even if the interest rate remains the same “for life”, as operators claim, the actual amount of interest being charged grows.

David Forsdyke, of Knight Frank’s later life finance department, said: “It is absolutely best practice to engage with the children wherever possible – we always ask who our clients’ beneficiaries are. We will encourage them to talk to their children and include them in discussions.

“When it comes to interest roll-up, if clients have surplus income we’d encourage them to make payments. You can pay back at least 10pc every year without incurring extra charges.

“This is where a conversation with the family is helpful – children can help pay the loan down by making payments, even if it’s only to service the interest and stop it rolling up.”

While much has been done to better regulate the sector, some still feel there are lessons to be learnt from the past – and that the way the product is sold still needs to change.

Those that advise on equity release typically specialise in it. If a customer does not need equity release, there is an incentive to tell them to buy it anyway – because the adviser will not earn an income if they do not.

Equity release also rewards advisers with higher fees than a typical mortgage. Rob Sinclair, of the Association of Mortgage Intermediaries, said last year that the strikingly disparate fees advisers can charge for different types of loans is a blatant “conflict of interest”. He said: “A standard mortgage might fit them, but then a lifetime mortgage might be picked instead because 10 times the amount can be earned.”

‘I think there was a degree of shame. My father didn’t want to admit it’