An £8,000 equity release penalty
Reprinted from The Times, 21 July 2018

Laura Whateley,
Our consumer champion tackles your complaints

My friend, for whom I have power of attorney, and his wife took out a lifetime mortgage with Norwich Union (subsequently taken over by Aviva Equity Release) in July 2006. They did not make any interest payments, so the loan increased over the years. My friend’s health deteriorated after his wife died and in January 2017 he was admitted to hospital and social services assessed that he was not able to look after himself. He was released into a care home two months later. Aviva was informed in April 2017.

Apart from a small pension, my friend’s only asset is his house. He understood it would have to be sold to pay for his care costs and the lifetime mortgage would have to be repaid from the proceeds of the sale.

On completion of the sale in January the lifetime mortgage was repaid, but Aviva included an early repayment charge in the settlement figure of £8,075. This was despite the original loan’s conditions stating that if you went into full-time care an early repayment charge would not apply.

To not delay completion the solicitor paid the full amount and on January 25 advised Aviva that the early repayment charge would be contested, but it has received no response.
Mr C Wright, West Sussex

A Mr Wright has written to Aviva on his friend’s behalf four times since April, as well as phoned and emailed. The only time he has had contact was in January, when he was asked to send copies of his power of attorney. The matron of his friend’s care home has also written to Aviva confirming his medical condition and need for full-time care and called. Aviva has not replied.

Mr Wright says: “I believe Aviva’s lack of response is neither professional nor ethical.”

On the front of Aviva’s web page advertising its lifetime mortgage, it states: “Our lifetime mortgage is a form of equity release, essentially a long-term loan secured on your property. You don’t need to make any repayments before the end of your plan. We’ll still add interest on to the loan each year at a fixed rate, but the loan and the interest are repaid in full, usually from the sale of your property when you die or go into long-term care. Terms and conditions apply.”

These terms and conditions are key because, contrary to what it appears to state, selling your home because you are going into long-term care is not a reason to avoid a hefty early repayment charge. You have to be deemed “ill enough” by Aviva’s stringent criteria. You do not have to pay the charge if you are going into care because you have dementia, or if you need help from someone else to perform at least two activities of daily living. These include dressing, feeding, moving from room to room, being able to move from a bed to an upright chair and vice versa, being able to use the toilet, or being able to wash.

Aviva says it was not made clear by Mr Wright whether his friend was able to complete these tasks. It says: “Our customers do not have to pay an early redemption charge if they meet certain criteria. We have a process in place to assess whether this applies and in this case we sent medical forms to the customer when he notified us that he had gone into a care home in April 2017, but we did not receive a response.

“In January 2018 we received notification that the lifetime mortgage was about to be redeemed, but the information provided by Mr Wright at that time confirmed that our customer would not meet the criteria needed for the early redemption charge not to apply. Mr Wright has contacted us to clarify this position, but we did not respond adequately to these inquiries. We have now arranged to refund the charge.”

Aviva has also offered Mr Wright £300 as a gesture of goodwill.

Reprinted from The Times, 21 July 2018