Equity release firms are boosting bumper profits by charging debt-laden borrowers hundreds of pounds for small admin tasks.
A Money Mail investigation has found different lenders are charging wildly different fees for paperwork — with one firm charging £600 and another nothing at all. Critics say the charges are unjustifiable and risk abusing customer trust.
The charges are levied if a borrower wants to make a change to their plan — such as borrow more money, move the loan to another property, or remove a person from the contract.
Stinging fees: Different equity release lenders are charging wildly different fees for paperwork – with one firm charging £600 and another nothing at all
The cost is also compounded because equity release decisions can only be made after talking to an independent adviser — which can add thousands of pounds to the bill.
Equity release, also known as a lifetime mortgage, allows homeowners aged 55 and over to borrow cash tied up in the value of their property.
But the loans can be expensive — with compound interest charges typically rolled up every month.
The country’s largest lender Aviva has announced it is raising a string of fees later in the summer.
Yet Aviva’s account figures show the firm’s equity release arm made a profit of £33.6 million last year, and £65.7 million from fees and commission.
Equity release operation Legal & General Home Finance brought in £68 million and made a profit of £9.6 million, while Just Group made £236.7 million, but this includes income from other parts of the business, too.
But the extra fees levied by the lenders mean if a homeowner with Legal & General wanted to borrow more money from their home, they would be charged a £599 ‘further borrowing’ fee, as well as a £322 valuation fee, based on a home worth £350,000. They would also have to pay a typical £1,500 in advice charges — a total of £2,421.
Including advice fees, an Aviva borrower would pay a total of £1,675 and More2Life £2,260. Yet a Nationwide customer would pay nothing for the same service.
Nationwide charges no admin fee for further borrowing because it says it only charges fees when it incurs a cost.
The lender Just also imposes no admin fee, but borrowers must pay for advice and valuations.
Only 1 in 100 customers switch
Fewer than one in 100 equity release borrowers are switching deals to save thousands of pounds, figures unearthed by Money Mail show.
Earlier this year, we reported how borrowers could save more than £30,000 after ten years by moving onto a lower interest rate — even after paying any exit fees. But lenders are not obliged to let their customers know that they could save.
It means tens of thousands of older and vulnerable borrowers could be needlessly languishing on high interest rates.
There are now more than 300,000 live equity release mortgages, according to trade body the Equity Release Council. Aviva has more than 100,000 of these.
But our Freedom of Information Act request to City watchdog the Financial Conduct Authority (FCA) has revealed that in 2018 just 121 remortgages to a new lender took place. This climbed to 772 in 2019 and 1,011 last year.
Current rules say lenders cannot contact their own customers to discuss switching plans, but an independent review and advice can be recommended to them.
Patrick Buckingham, 82, from Warwick, was able to switch his £100,000 equity release loan from a 3.90 per cent rate to 2.27 per cent.
He called his broker Responsible Life in March when he read that rates had dropped. He will now save £16,800 over the next eight years and £37,000 by his 95th birthday.
Patrick says: ‘I was delighted. I’m sure some people have no idea of the savings they’re missing out on.’
Equity release lenders are also charging hundreds of pounds to shift the loan to a new property.
One Family charges the most at £695, while Canada Life charges £650 and LV= demands £595. Again, Nationwide and Just charge nothing. And the bill to add or remove a name can cost as much as £695 with One Family or £595 with LV=.
Lynda Blackwell, former mortgage manager at industry watchdog the Financial Conduct Authority, says some of the fees are outrageous.
She says: ‘When setting charges, firms should consider are they fair and are they excessive? When you look at some of these charges, well, the fees speak for themselves.
‘They really do need to consider if they are abusing the trust customers have put in their company. You would expect lenders that are dealing with older, vulnerable customers not to pass on these fees when they are already making money from them.’
Yet Aviva has now written to customers to inform them its fees will be rising from August 10. The fee for further borrowing, for example, will soar from £75 to £175.
High cost: Equity release, also known as a lifetime mortgage, allows homeowners aged 55 and over to borrow cash tied up in the value of their property
Money Mail reader Bob Bevan says the decision was ‘morally wrong’. He took out equity release with the firm in 2019 to spend on extras in retirement.
He says: ‘They are changing the rules after kick-off and it’s not right. Even though they may be entitled to, it’s morally wrong. There’s no justification for it but as equity release borrowers, we are captive in this.’
Baroness (Ros) Altmann says equity release customers often did not realise the true cost of their loans until it was too late.
‘Equity release charges are not in the customer’s best interests and the fees overall for equity release are usually very high because they pay such large commissions,’ she says.
An Aviva spokesman says: ‘Aviva review customer fees to make sure the fees reflect our reasonable costs for administering demands associated to a lifetime mortgage.’
A spokesman for LV= says: ‘We look to set our administration charges to cover costs, rather than as a source of profit.’
A Nationwide spokesman says: ‘Any fees that are applied on taking out a product are justifiable and linked to where the society incurs costs.’
A spokesman for trade body the Equity Release Council says: ‘Every equity release provider publishes a standard tariff of charges to customers, while all advice fees and charges are clearly documented and discussed during the advice process, in line with regulatory requirements.’
About equity release
Equity release allows you to tap into your home to fund retirement, spend on home improvements, or pay care bills and stay in it at the same time.
The main type of equity release product is a lifetime mortgage, where you borrow against your home’s value and interest rolls up to leave a debt that is eventually paid on your death.
A less popular alternative is a home reversion plan, where you sell a chunk of your home for a cash lump sum.
If you are considering equity release make sure you ask about ways to make it cheaper, such as making interest payments, use a professional qualified adviser to help you through the process and compare the best rates and check how much you will pay in fees.
> Learn more about equity release
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