The Sunday Times - UK (2022-04-10)

12 The Sunday Times April 10, 2022

MONEY

I

n 1999 Lavinia Neville was 72 and living in a second-floor flat in Wand- sworth, southwest London. She was finding it difficult to climb stairs and decided to move to a nearby flat with a lift. The retired French teacher, who was divorced, owned her £115,999 property outright and the flat she wanted was £135,000, so she needed to find about £20,000. She had shares worth £27,000 at the time, so could have just cashed them in, but she was told by a financial adviser from Norwich Union, now part of Aviva, that she would be able to afford the new flat with a complicated bit of financial engineering. It involved using a newly launched, unregulated equity release product called the Norwich Union Capital Access Plan to draw money from the property she was moving to. This advice, which she now regrets taking, cost her about £100,000. The plan was an early version of an equity release scheme that allowed you to unlock the value in your home without needing to pay any repayments or interest until you died or sold your property. The interest is added to the loan amount and compounds, meaning the debt can snowball. But a quirk of the plan was that the amount you could borrow was set in stone by your age and the value of the property. It could have been more or less than you actually needed. And rather than paying interest only on what she borrowed, Neville paid it on the entire value of the property. Neville was told she could borrow 27 per cent of the value of the property she was buying — £36,450, which was more than she needed. If she had been 80 or over, she would have had to borrow 30 per cent. If she had been between 65 and 69, it would have been 25 per cent. The interest rate of 2.9 per cent was fixed for the term of the product. The Bank of England base rate was 5.25 per cent at the time, so it seemed a good deal. Neville is now 95 and her £120,600 debt is growing by about £5,500 a year. Neville and her daughters want to know why she was not advised to sell her shares rather than take out this hugely expen- sive loan. They also believe that she was persuaded to borrow too much. Neville actually sold what was left of her shares, which included investment in blue chip firms such as the miner BHP Bil- liton and the insurer Prudential, after the 2000 dotcom crash within months of taking out the loan. When she needed to move home again, to a flat in Muswell Hill, north Lon- don, in 2009, she was able to transfer the equity release plan, but only if she repaid about £19,000. Her present home is now valued at about £290,000, so she would have about £170,000 left if she sold it and paid off the loan. She is increasingly frail and is worried that she would be left with little to fund care in the future. At present one of her daughters cares for her.

Capital Access Plans were sold by Nor- wich Union for a year between November 1998 and November 1999. There are about 240 such plans still in use. Aviva said it dropped the deals because its customers wanted to choose how much money they borrowed. Many who took out the loans are only now starting to discover the full extent of what they signed up to.

Was Neville mis-sold? Neville’s children, who have power of attorney over her affairs, believe she should have been advised to use her shares to cover the cost of the move.

The £36k

loan that cost

Mum £100k

Lavinia Neville’s daughter thinks her mother was

misadvised on an equity release but she may have ended up better off, writes Ali Hussain

Neville now plans to move in with her daughter Julia Wright, 59, a researcher at Coventry University who lives in War- wick. Wright said: “My mother needs more intensive daily care that she can’t afford and is distressed at this situation. “It’s good practice to use existing capital rather than take out extra debt. My mother had no debts, share assets and a disposable income from her pension at the time so why did Norwich Union not suggest something more suitable? It feels to me that the adviser was more inter- ested in commission to sell the product than the best interests of my mother.” The adviser, who worked for a subsidi-

ary of Norwich Union, was paid an arrangement fee of £350 by the parent company for selling the plan. In 2016 Neville complained to Aviva about her plan but her complaint was dismissed. Another complaint last year was also rejected. In its response Aviva said it may not be an issue the Financial Ombudsman Service (FOS) would be able to investigate because the deal was arranged before mortgages started being regulated in 2004. However, the FOS has been reviewing complaints about equity release schemes offered by Norwich Union and others at the time. An FOS ruling in January relates to a man who borrowed £18,360 on a property valued at £68,000 using a Nor- wich Union Capital Access Plan in 1999. He is now dead but his family claimed it was unfair that 2.9 per cent should apply on the entire property value and not on the sum borrowed. The FOS rejected the complaint, saying that standard equity release deals at the time,

Lavinia Neville, 95, with her daughter Julia and granddaughter Emma. Above: Neville’s home in north London

which applied interest only on the sum borrowed, had rates of 8.25 per cent. As a result those who think they were mis-sold may actually be better off than had they taken a standard deal. Over 22 years, a debt accruing 2.9 per cent interest applied to the whole property’s value would have grown to about £74,305. With interest of 8.25 per cent applied only to the sum borrowed, the debt would have grown to £97,020, the FOS calculated. Aviva said: “We have conducted a thor- ough review of our response to the complaint from Mrs Neville’s family last year, regarding the sales process of her product. We have found no evidence that this was mis-sold. Mrs Neville stated at the time that she did not have sufficient spare capital to move to a larger flat, as she wanted. The amount of the loan was based on the sum available through the Capital Access Plan, calculated on her age and value of the property.”

What can you do? If you feel you were sold a mortgage that was not fair or the details were not clear, ask the FOS to investigate. The ombudsman cannot look at mortgage complaints relating to products sold before October 2004 when the market became regulated. It can, however, investigate if regulated advice was provided at the time or if the mortgage was sold alongside a regulated product, such as an annuity or some other form of investment plan. Based on the value of your home and the debt, you may also be able to remort- gage to another equity release scheme with better terms. The average amount you can borrow against a property at the age of 90 is 49 per cent of its value, according to the data firm Moneyfacts. Many advisers will offer free consulta- tions to customers with existing loans. Bear in mind that a local authority may investigate if it suspects you have released equity to avoid care home fees (a deliberate “deprivation of assets”). It is not a deprivation of assets if you release equity to pay for care or care-related adaptations to your home.

100,000

200,000

£300,000 debt

HOW NEVILLE WAS BETTER OFF

0 5 10 15 20 25

0

Source: Candid Financial Advice

Years

Standard equity release Interest of 8.25% on £36,450 loan

Neville's loan Interest of 2.9% on entire £135,000 home

Premium

Bonds take a

hit as saving

rates rise

As lockdown lifts and worries about inflation grow, the surge of cash flowing into Premium Bonds has slowed. Over two years of lockdowns, the amount held in National Savings & Investments Premium Bonds swelled 36 per cent, from £87.7 billion in May 2020 to £117.2 billion this month. Between May 2020 and December 2021 an average of 1.5 billion new £1 bonds were entered in the prize draw every month, as savers facing ultra-low rates elsewhere opted for a chance at the £1 million jackpot. But in the four monthly draws this year the average number of new bonds has fallen 62 per cent to 560.7 million. The last time a monthly draw had more than 1 billion new £1 bonds entered was August last year, and the 360 million figure for this month’s draw is the second smallest since April 2020. New bonds must be held for a month before they are entered into a draw, making them a good indicator of how much money is being saved each month. The bonds entered in this month’s draw were bought in February. The decline in savings into Premium Bonds is partly because households are saving less as lockdowns have been lifted. In 2020 the savings ratio — a measure of how much of our disposable income we put aside — hit a record 28 per cent. The Office for Budget Responsibility expects it to fall to 2.8 per cent by the start of next year. Another factor is rising savings rates elsewhere. Six banks now pay 1 per cent or more on easy-access accounts, and Chase, JP Morgan’s smartphone bank, pays 1.5 per cent — the best easy-access rate since September 2020. While Premium Bonds have an effective prize fund rate of 1 per cent a year, there is no guarantee that you will win anything. NS&I cut the rate from 1.4 per cent to 1 per cent in December 2020, making the odds of a bond winning 34,500 to one. In February NS&I raised rates on its easy-access accounts, which were losing savers because rates were as low as 0.01 per cent. Some are now at 0.5 per cent. Although they remain far off best-buy rates, they have helped NS&I to improve its fundraising. It is forecast to raise £4 billion in 2021-22, which is £2 billion below its target. It has the same £6 billion target for 2022-23.

George Nixon

YOUR STORY Have you been mis-sold? Email [email protected]

John Moseley is worried about his children and grandchildren. He thinks that the cost of living crisis means they will struggle to save for retirement, and that younger people today face greater financial challenges than older generations did. Having saved into his pension throughout his career as a civil engineer, Moseley, 77, is now most concerned with making sure he passes on his wealth tax-efficiently to his family. “I worry less about myself than I do for them,” said Moseley, who lives with his wife, Jo, in Beaconsfield, Buckinghamshire. “They really have it much harder than we did in the past, with the cost of living crisis and inflation making it harder to save, but I’d still advise them to prioritise saving into

Grandad’s

advice: ‘Save

now or you’ll

regret it’

Imogen Tew

aged 75 and over in the Netwealth survey, 43 per cent wished they had focused more on care costs, while 40 per cent regretted not taking their family’s needs into consideration when planning for retirement. Netwealth’s findings showed that the over-75s had more anxiety over their finances than those aged 65-74, suggesting that concerns for later-life finance increase throughout retirement. While 25 per cent of over-75s felt that they had underestimated how long they would be retired, only 16 per cent of those aged between 65 and 74 felt the same. One in four older retired people wished they had sought professional help with their finances, compared with about one in seven younger pensioners. “The regrets expressed by those aged 75 and over highlight that often we are not sufficiently prepared for retirement and unfortunately may not realise this until it is too late,” said Charlotte Ransom, the chief executive of Netwealth. “The lack of concern demonstrated by those earlier in retirement suggests they are sleepwalking into the same predicament, particularly given the more challenging investing backdrop that we are likely to see for the foreseeable future.”

as I could, and it has really paid dividends for me over the long term.” The most common piece of advice retired people wanted to give to younger savers was that they could “never start planning for retirement too early”, according to research into the regrets of the retired by the wealth manager Netwealth. Some 55 per cent of the 2,000 pensioners polled recommended early planning, while 45 per cent of retired people advised younger people to be prepared to be retired for longer than expected. Making a retirement bucket list and using resources including financial advisers and online tools were also among the recommendations. When researchers asked those in retirement to name their biggest regret, the most common reply was failing to save sufficiently for the cost of later-life care. Of those

their pension as much as they can.” Moseley has two children, Lucy and Guy, and three grandchildren. The one lesson he wants to pass on to younger generations is simple: save, save, save. Saving consistently has left his family comfortable in his retirement, with about £100,000 of investable assets. He said: “I put aside as much

John Moseley and his wife, Jo, celebrate their golden wedding anniversary with their grandchildren Joel, eight, and Theo, four

was 2 per cent and the five- year rate was 1.8 per cent last week, according to SPF Private Clients, a mortgage broker. At the start of January the two-year swap rate was just over 1 per cent. In September the lowest two-year fix was 0.84 per cent from TSB. Now it is 1.75 per cent from Newcastle Building Society, available at up to 80 per cent LTV with a £999 fee. The lowest five-year fix is not much more, at 1.92 per cent from Cumberland Building Society. It has a maximum LTV of 60 per cent and a £1,999 fee. Aaron Strutt from Trinity Financial, a mortgage broker, said: “It’s hard to see how the cheapest two-year fixes won’t be 2.5 per cent-plus soon.”

Nationwide Building Society, the second largest lender, charges the same rate on a five-year fix as it does for two years. It charges 2.14 per cent for those remortgaging on two, three and five-year rates up to 60 per cent LTV with a £999 fee. This topsy-turvy pricing is largely being driven by the rate at which banks lend to each other, called the swap rate, which is based on predictions of what the Bank of England base rate will be in the future. Because of high inflation and concerns about long- term growth, banks expect the base rate to be higher in two years’ time than they do in five or ten. The two-year swap rate

two-year deal will charge 2.54 per cent, more than its lowest available rates for five and ten-year deals, which will be 2.48 per cent. These deals are available at a maximum loan-to-value (LTV) of 60 per cent and come with a fee of £999. This means someone with a £200,000 mortgage over 25 years would save £72.60 a year by fixing for five or ten years compared with two. It normally costs more to fix your payments for longer. Simon Gammon from Knight Frank Finance, a mortgage broker, said: “I can’t recall seeing two-year fixed-rate mortgages priced higher than five and ten-year products in more than 20 years in the business.”

Ten-year

mortgages

cheaper

than two

Five and ten-year fixed-rate deals at the largest mortgage lender are now cheaper than two-year fixes. From Monday Halifax will increase mortgage rates by up to 0.5 percentage points, with two-year deals going up by twice as much as five and ten-year deals. Its lowest

George Nixon

The Sunday Times - UK (2022-04-10)

Get our desktop app

Company

Features

Documentation

Resources