Recently, I’ve been approached by a potential equity release customer and the story of his treatment by the country’s biggest building society has, frankly, left me reeling.
Tom (not his real name) is 73 years old. He’s semi-retired and receives pension income totalling around £1,200 per month. To supplement that, he also has a part time job, which brings in another £500 a month.
He has an interest only mortgage with Nationwide. It’s got around £120,000 outstanding and the value of his home is £160,000. Currently his mortgage costs him £276 per month, so, taken all around, he’s quite comfortably off.
Recently though, he was disturbed to receive a communication from Nationwide advising him that his mortgage term was coming to an end and they wanted to know how he planned to repay the £120k.
Tom didn’t have an answer for that. He doesn’t have that kind of money. At some point in the past, he had an endowment policy but it appears that, when he was diagnosed with prostate cancer, that policy first lapsed and was later cashed in.
Now we can all get judgemental about such decisions and say he shouldn’t have done those things – but think on. Maybe if you believed you didn’t have that long to live, your priorities might change a little too.
Tom had asked about equity release as a way to get Nationwide (who were becoming increasingly insistent in their demands) off his back. Unfortunately though, at 75% of the value of the property, he was unable to raise sufficient funds.
We looked at other options, including a joint mortgage with one of his children and borrowing from other family members and, although those avenues are still being pursued, as yet, there’s no firm solution in sight. He had also been having some conversations with a sale and leaseback company (although I advised him to tread very carefully in those waters).
Tom’s had a number of discussions with Nationwide but, although they had been willing to extend his original mortgage term two or three years ago, this time they are immovable. ‘We don’t offer interest only mortgages anymore’ the man from Nationwide told Tom, ‘and anyway, even if we did, we don’t think the mortgage is affordable to you’ he added. Tom was incredulous – given that he has always (and continues to) paid this ‘unaffordable’ mortgage.
The helpful Nationwide man suggested he might sell the house and rent – thereby doubling to trebling his monthly housing cost (the one they have already concluded is ‘unaffordable’). Oh and, at the same time, removing him from the home in which he has been comfortable and familiar for many years.
Nice job guys.
Why do they want to drive this? Purely, it would seem, to get their £120,000 back. But why should they care? At the moment that money is:
- lent out to a homeowner (surely one of Nationwide’s core business activities)
- having interest payments consistently met and
- enjoying the benefit of a 25% headroom equity buffer
Why can’t Nationwide just leave this loan to run its course until Tom is no longer with us and collect their cash then?
Ah, but, Nationwide might say; ‘what if interest rates rise? He may be able to afford it now but what if he can’t in the future’?
To which I say ‘well worry about that if and when it happens’. Tom tells me he can afford up to £600 a month so, unless rates go above 6%, he’s all good.
Nationwide could build in some extra protection by offering the man a 5 year fixed rate if they are that worried.
But no!
They don’t do that. They don’t show any flexibility at all. Nor do they show the slightest inclination to help what might be termed a ‘vulnerable customer’ (though I suspect Tom might ‘cuff my ear’ if he heard me describe him in such terms).
Instead, they behave in this intractable and belligerent manner, which is to the shame of the entire mortgage lending industry.
As things stand, we are still trying to work out if a combination of a Retirement Interest Only mortgage plus some borrowing from his family members can pull together enough cash to get the Nationwide ‘harpies’ off his back.
Wish us luck