Since 1991, the No Negative Equity Guarantee has protected families from owing more than the property is worth. But Coles says the fact borrowers must pay \u201cinterest on interest\u201d makes it easy for debts to quickly spiral.<\/p>\n
\u201cThe real cost comes over time as the interest mounts,\u201d she adds. \u201cThe compounding [effect] is working against you.\u201d<\/p>\n
Because loans become due as soon as the borrower dies or moves into long-term care, but interest continues to accumulate in the background, it can pile pressure on grieving families to pursue a cut-price sale to pay back what is owed.<\/p>\n
On the other hand, if a lifetime mortgage lender believes a seller has undervalued a property on which it has a loan, it can potentially stall a transaction in the hope of achieving a higher sale \u2013 or the \u201cbest price reasonably obtainable\u201d.<\/p>\n
\u201cFor the lender, it\u2019s a toss-up between accepting a very low offer and being shot of it and carrying on marketing it in the hope they get another 20 grand back,\u201d says one probate property agent, adding that in most cases lenders will seek a quick sale where debts eclipse the value of the house to cut their losses.<\/p>\n
Kelly Melville-Kelly, at the Equity Release Council, says that lenders are generally quite reasonable, but may start \u201chaving more conversations\u201d with executors if they are concerned about how it could affect the property\u2019s value if it doesn\u2019t sell within a year.<\/p>\n
\u201cWhere there is a worry is if the house is empty for over 12 months and you start getting into disrepair and dilapidations that actually make it harder to sell,\u201d she adds.<\/p>\n
Inheritance evaporating<\/p>\n
Despite the risks, calls among policymakers and regulators to ramp up the use of equity release schemes have grown.<\/p>\n