- Jane Horton and late husband David give a small farm as a wedding gift in 1975
- David tragically died in 2013 and Jane took the farm off the market in 2020
- In 2008 he took out an equity release loan of £384,000 through a financial advisor
- Deal – from Prudential – 6.87% charge – adding £27,000 in first year alone
- By year 13 the interest bill due to compound interest had reached around £62,000.
- Jane has since discovered when mortgage advisor pocketed £7,120 in commission
- He was also fined £96,000 for early repayment of the equity release loan
A widow has spoken of her horror at losing £1 million to an eye-watering equity release bill on her beloved family’s farm.
Jane Horton and her late husband David were given 35 acres of land in the New Forest as a wedding gift in 1975.
But after raising two daughters and growing old in their Hampshire home, David died in a 2013 riding accident, leaving Jane to run the farm alone.
Losers: Jane Horton was told she would have to pay £1 million to clear her £384,000 equity release debt before she could sell her farm
After eight exhausting years, at the age of 72, Jane finally decided enough was enough and put the farm on the market.
Yet instead of being able to enjoy retirement, she was stunned to learn that she would have to pay £1 million to clear the £384,000 equity release debt she added 13 years ago.
The shock bill, which experts say put the equity release industry to shame, included more than £500,000 in interest charges and an exorbitant £96,000 early exit penalty. This left Jane with over half the proceeds from the sale of the farm.
More than 100,000 borrowers are expected to be trapped in paying rolling interest charges of more than 6 percent due to the forced withdrawal penalty.
Jane and David were both 26 when they took over the farm. It was chaotic and they knew they had a challenge on their hands.
What is Equity Release?
Equity releases typically include a lifetime mortgage, which allows people to borrow against their home and choose not to make monthly payments, instead the interest is rolled over until the home is sold. , possibly after death.
It is only available to those over 55 and there are limits on the value of the home that can be borrowed.
There are options to reduce the financial impact of the loan, for example, making interest payments or withdrawing only small amounts when needed.
Equity releases can help the asset-rich but cash-limited live a wealthy retirement, or make necessary home improvements to plan for your later years.
However, there are pitfalls and financial and inheritance implications, so it is important to seek financial advice, discuss this with your family, and consider it very carefully.
Potential borrowers may be better off downsizing to release some cash, or take on a traditional mortgage or retirement interest-only deal.
It is essential to ask consultants about all of these options.
As our story shows, you should also look carefully at the costs of exit fees.
you can request A Free Age Participation Guide to Equity Release Which explains more about how it works here.
But before long, he founded a successful riding school, built barns and stables and designed a cross-country course for his clients.
The property was the pride and joy of the couple. ‘It was a beautiful little farm,’ says Jane. ‘My late husband loved it to bits.’
In 2008, he considered retirement, but David was concerned about the size of his pension. He also had to pay off the outstanding debt.
So the couple contacted a mortgage advisor, who recommended the issuance of £384,000 of equity from the property.
Equity release loans are available to homeowners aged 55 and above. Borrowers don’t have to make any monthly payments, instead the loan is paid off when the last surviving owner dies or moves into long-term care.
But monthly interest repayments are carried forward and added to the loan, which can cause the debt to snowball.
Jane & David’s equity release loan from Prudential charged 6.87 percent interest.
This meant that in the first year alone, £27,000 of interest was added to his loan. And due to the nature of compound interest charges, by year 13 his annual interest bill had reached around £62,000.
At that rate, Jane’s debt was growing at £170 a day, or £7 an hour – more than the minimum wage for an 18 to 20 year old at £6.56.
But Jane, a retired teacher, did not understand the exact scale of the spiraling fee until she came to sell the farm, and found that the £384,000 loan had more than £500,000 in interest.
Wedding gift: The former family farm in the New Forest that was gifted to Jane and her late husband David as a wedding gift in 1975
“We have never asked for an equity release mortgage,” she says. ‘We are intelligent people but somewhere we have got caught in it.’
And Jane has since discovered, since ditching her original loan agreement, that the mortgage advisor earned a whopping £7,120 in commission from Prudential to recommend the loan.
Jane says David took care of her finances, which included filing an annual statement that would show how much debt had increased each year.
To add insult to injury, he was also fined £96,000 for early repaying the equity release loan.
That’s because Prudential linked its repayment fee to the Bank of England’s base rate, which was 5 percent at the time.
The small print states that if the base rate falls by 1 percent, there will be an exit fee of £96,000. Just two months after the deal, the base rate started falling sharply to all-time lows.
The only way to avoid the penalty, if they needed to be sold, would have been to keep the base rate at 5 percent for 28 years.
The couple knew that if they…