Machester Bulding Society – Another equity release fiasco

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For years, Manchester Building Society (“MBS”) offered lifetime mortgage loans to owners of Spanish property. The facility allowed “asset rich, cash poor” property owners unlock their wealth by means of periodical drawdowns that typically, would only be repayable upon death of the borrower, within a maximum period of 12 months from the demise.

According to their promotional brochure, […] the personal representatives or beneficiaries of the estate need to decide if they wish to complete the inheritance and if so, they become responsible for the property and, if necessary, arranging the sale.

The literature extolled the virtues of a rather simple and straightforward reverse mortgage where the owner would retain full ownership of the property and continue living in it, but also a “no negative equity guarantee” was available, it meaning that even if the outstanding mortgage -inclusive of interest- was higher than the eventual sale proceeds, the heirs would not be required to pay off the shortfall (not sure this clause was ever put to the test).

Finally, available equity ranged conservatively between 25 per cent and 50 per cent loan-to-value.

Now you may be asking yourself the purpose of this article because, admittedly, there seemed to be no pitfalls or associated dangers, small print, or even complex legalese in the legal offering, it was just plain sailing until the unpredictable happened: MBS ran out of cash to pay the pensioners the agreed instalments due to a prohibition by its regulator, PRA, to grant further loans in Spain and elsewhere (and stop those already signed for).  

Late last year a Velez Malaga Court fully accepted executive proceedings brought by Lawbird Legal Services against the lender, on behalf of a British client, demanding full payment of the agreed loan of 300k Euro (with interest). And with over one hundred and twenty “lifetime mortgages” signed in Spain by MBS, many of which are still ongoing, intense litigation is expected.

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