A family has been criticized for their ‘lack of morals’ at one of Britain’s biggest insurers after their parents’ exit fee jumped from £2,276 to £11,662 in the space of two weeks.
Allison Evans shocks Aviva insurance company when she refuses waiver of the early payment fee for a discharge mortgage loan that her parents owed 20 years ago.
Evans and her siblings were charged £11,662 to pay off a £45,000 loan their parents had taken out in March 2003. The debt on the loan, taken out to fund home improvements, had doubled to £167,696.
Homeowners can withdraw cash from their homes through equity release agreements. 13,000 new borrowers took cash out of their homes in the third quarter of last yearwith £1.7 billion being drawn down by all equity borrowers – another record.
Over time, equity release loans accumulate leaving families with huge debts to clear. The loans must be repaid when either the property is sold or the occupants are placed in long-term care.
Although equity release companies now offer “no adverse equity guarantees”, there was very little protection in the industry before 2004.
The Evans family decided to pay off their loan when they moved their parents into sheltered housing in order to avoid further debt.
Aviva’s website stated that exit fees would be waived after 15-years, so they believed they wouldn’t be charged.
It wasn’t clear to Evans that the 15-year rule only applied to some of Aviva’s loans — not her parents’.
A second unpleasant surprise awaited her. The return on “government bonds” or government debt was what was tied the loan penalty. This type of early repayment fee can be volatile due to the correlation. The penalty is not fixed-fee loans. It depends on how much gold prices have changed in the time since the loan was taken.
The bond markets were left to fend for the family. When they went into meltdown after Kwasi Kwarteng’s micro-budget. Between 17 October and 28 October the fee increased fivefold from £2,276 to £11,662 – money Evans and her brothers had to look for at the last minute.
The final fee was 26% from the amount borrowed. This level is unacceptable in current industry standards. Evans couldn’t believe Aviva wouldn’t waive the fee considering the amount the family had already paid to the company.
“The £45,000 loan has been paid back more than three times over. What more do they want?”
Experts claim that the industry has lost the right to charge an early settlement fee for gold, which is still included in some contracts.
Linda Blackwell, a mortgage expert formerly of the city’s FCA, said: “For a sophisticated client who is invested savvy, willing and able to take a risk — okay. Huge. No one can ever predict how gold prices will move.”
Blackwell said that borrowers who had the plans in place more than a decade ago would be subject to “enormous penalties” because of movements in the gold market.
Exit fines can be fixed at between 1pc to 10pc of the original amount borrowed. The amount decreases over the years, just like a conventional mortgage. So the borrower pays 10% for the first year, 9% for the second, and so forth, until it expires.
Stuart Powell, of Ocean Equity Release, a broker, calculates that a borrower who wants to get out of a £100,000 loan after six years would pay £5,000 if there were a fixed fee, but if the fee was gold-related, he could pay the same £25,000. .
Evans complained about Aviva, which refused to waive the fee. She stated that she would have done it if Evans’ parents had moved into long-term residential care. Aviva stated that her parents moved into a sheltered home with 24-hour care, but it didn’t meet their standards of long-term care.
An Aviva spokesperson said: “We understand this has been a difficult time for the family, and we regret that they are not satisfied with the outcome of their case. We have carefully reviewed the circumstances following contact from the family, but unfortunately there was no further evidence to enable us to change this decision.”
Ms Evans said: “We feel very strongly that Aviva is taking advantage of our elderly and mentally frail parents. This is corporate greed at its worst.”
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