What happens if you inherit an estate where the owner has taken out equity release? This is something one of our readers is facing - Mark Gregory of Equity Release Supermarket has offered advice
The Question
I am looking for advice and found your website, so I hope you can help. I recently discovered I am the sole beneficiary of my uncle’s will. I am afraid to say I did not know my uncle very well as he was estranged from our family. However, his solicitor/executor has been in touch following his death with this information.
It would seem his home had an equity release plan attached. I believe this means I will inherit only the value which remains after the loan from the equity release company is repaid – if any. The house looks like it will sell for around the £400k mark and I understand equity release was taken out with Age Partnership around seven years ago for £125k.
Will I inherit anything? How does the repayment work? And will I be liable if interest has compounded and there are outstanding payments? Thank you.
Mark’s Answer
Thank you for your question, and I am sorry to hear of the passing of your late uncle. I can provide you with an overview of what happens when a plan holder passes away; however, I strongly recommend the solicitor/executor of your late uncle’s estate contact Age Partnership initially for detailed information.
However, please be aware that Age Partnership are an advisory firm, and though they may have given the advice to secure equity release, you have not made it clear who the actual provider of the equity release plan is. Therefore, it is best to contact the provider directly in the first instance as they can provide your solicitor/executor with detailed information including how much the debt currently is.
Assuming your late uncle had a Lifetime mortgage, this is a special type of secured loan, and it will usually attract a fixed interest rate for the full-term of the plan. The loan and any accrued interest is normally paid back when either the plan owner pass-away or enter long-term residential care.
All plans now offer the option to make flexible payments to repay some of the capital borrowed each year without penalty, and plan holders can use this facility to manage the capital balance and avoid compounding interest. Of course, at this stage it is not clear if your uncle made any payments, and what fixed interest rate was secured to his borrowing.
On the death of a plan holder, the plan will continue to attract compounding interest until the loan is repaid, and it is anticipated that this will be within 12-months of the death of the plan holder or when they have entered long-term care.
Once the property is sold, a solicitor will complete the legal work and arrange for the provider to be repaid from the sale of the property, or from the estate if a beneficiary wanted to keep the property and they could afford to repay the loan and interest.
Any residual capital would be then distributed to the beneficiaries of the estate. Lenders always hold a first legal charge on the property, so they are repaid in the first instance when the property is sold.
Finally, assuming your late uncle had a lifetime mortgage that was taken out several years ago, I can confirm that all lifetime mortgages have a no negative equity guarantee which means that if the value of his home is not sufficient to repay the lifetime mortgage in full, the beneficiaries will not be liable for the difference provided the plan holder have complied with the terms of the mortgage, so rest assured you should not be liable.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
