These borrowers risk losing the entire value of their home to their lender thanks to the way in which interest is added to the original debt and mounts up from one year to the next.
Nigel Clarke, 60, from Putney, south-west London, said the yearly interest payments on his 93-year-old stepmother’s lifetime mortgage had snowballed to £47,000 last year. She released £235,000 from her home in 2010 and now owes Aviva, the lender, more than £500,000 after locking into a 7.4pc compounded yearly interest rate.
Mr Clarke said: “At this rate she won’t be able to afford any nursing fees. We’re trapped and in a downward spiral and soon she won’t own any of the house.”
He fought to lower the interest rate and was told he could remortgage at a rate of around 3pc. But a £200,000 gap between Mr Clarke’s independent valuation of the semi-detached cottage and the valuation commissioned by Aviva has resulted in stalemate.
“They have underestimated the value so we can’t switch. They’ve made their money out of her; why can’t they lower the rate now? It has felt like bullying,” he said. Mr Clarke warned: “Sell your furniture and silverware before you resort to equity release. Do whatever you can.”
Aviva said its valuations were made by independent third parties working to industry standards. “We are concerned that Mr Clarke feels he has been bullied. We reviewed the communications and found them all to be courteous and professional. Mr Clarke and his stepmother are free to remortgage with another provider,” it said.