Life interest in residence with equity release mortgage

(John Smart) #1

A residence is owned by spouses as tenants in common and is subject to an equity release mortgage where interest accumulates. On the first death the spouse has a normal right of occupation subject to payment of outgoings. On the second death, how is the accumulated interest dealt with as between the remaindermen of the life interest trust and the second spouses estate. Is the estate of the spouse with the life interest liable for all of the accumulated interest from the date of the first spouse’s death, or does liability for repayment of the mortgage attach to the property and therefore fall on the remaindermen and the second spouse’s estate equally?

John Smart
Richard Griffiths and Co

(Tim Gibbons) #2

I don’t think that rolled-up interest under an equity release mortgage can be equated to the normal expenses of occupation and charged to the life tenant. I would expect that most couples entering in to such an arrangement would see the interest as a charge to capital and to be born by shares equally. But in the absence of specific provisions in the will I think its difficult to be sure. Sometimes the capital raised on an ER mortgage is used to benefit one of the owners rather than another, which can lead to problems.

I think that these are points on which specific instructions need to be taken, both when dealing with wills of this kind, and also for those who advise about ER mortgages.

Tim Gibbons