Fianna Fáil Spokesperson on Finance Michael McGrath TD has warned customers who took out a so called ‘Life Loan’ to be vigilant as to the liability they are accumulating and to take steps to address the issue if necessary.
‘Life Loans’, which are still legal today, were being actively marketed by the banks in the Celtic Tiger era and generally involved older, mortgage-free homeowners releasing equity in their home. The customer did not have to make any repayments on the loan during their lifetime unless they sold the home or no longer lived there. The outstanding balance becomes a charge on the property and eventually has to be repaid, normally when the customer dies.
Deputy McGrath stated, “I recently investigated this area after a constituent approached me and I was staggered by the facts of his case. After being enticed by a bank to release €68,000 of equity in his home in 2002 with a fixed rate of interest of 6.77% for a fifteen year period, the amount he owed climbed rapidly. After five years, the liability was €95,000. After 10 years, it was €133,000 and after 15 years, it was to be €186,000. After a prolonged battle during which the bank said early repayment of the loan would involve financial penalties, the bank eventually agreed to start accepting repayments from the customer who was so concerned about how the loan was increasing.
“I have since raised the issue with the Central Bank and, while the Bank doesn’t appear to have complete data on this loan product, there are at least 3,100 customers owing approx. €320m. While ‘Life Loans’ of this nature are still legal, the Central Bank states that none are being provided at this time and the Central Bank’s Consumer Protection Code 20012 now applies to any new loans.
“While I believe that customers should have access to a range of financial service products, it is vital that the nature of the product and the full terms and conditions of these products are explained to customers when they are being sold. This is certainly not always the case. In the case of ‘Life Loans’, I am concerned that many borrowers have built up enormous liabilities that they are unaware of. Such customers would be well advised to check the status of their loan and obtain independent financial advice on how they should proceed. The Central Bank has confirmed to me that will now be considered as part of the ongoing supervisory engagement with regulated firms.”