Home income plan misery continues

Products relied on the stock market, which crashed

Lenders are being urged to freeze the debts of people who were mis-sold "home income plans" in the 1980s.

The only winners in this debacle are the lenders

Sheila McKechnie, director of the Consumers' Association

The plans were mis-sold in their thousands but, despite compensation, people are still burdened with spiralling debts.

In one case, a couple's debt increased by 170% in 13 years, despite a hefty compensation payment.

The Consumers' Association has now written to the Council of Mortgage Lenders, calling for sympathy from banks and building societies towards these people - and to freeze their debts.

Unexplained risks

With an equity home income plan, no interest was paid on the mortgage during its lifetime.

Instead, the interest was rolled up and added to the loan and an equity-based financial product.

The part of the loan not invested in the stock market was supposed to provide income for the borrower and to cover the interest on the debt.

But the risks were rarely explained and in the late 1980s interest rates spiralled while the value of the investments plummeted, leaving people with smaller investments and bigger debts.

Insufficient compensation

Many people did receive compensation, but it only covered the investment advice they received.

Most of the people who did receive compensation repaid this to the lender to try to bring down the debt.

But because of the length of time it took to get compensation, interest continued accruing on the loan.

Still suffering

Jeanne and Norman Wenzel are still paying back their debt.

They originally borrowed £32,000 from the Sussex County building society (now part of the Halifax).

The financial adviser who arranged the scheme invested £25,000 of the loan.

By 1992, the investment had shrunk to £17,000 but their debt had increased to £48,600.

In 1996 they received £18,000 in compensation and added this to what was left of the investment to repay £30,000 of the original debt of £32,000.

They still owe £57,000. In just 13 years the Wenzel's debt is more than 170% of the amount borrowed and is still rising.

'Lenders must act'

Sheila McKechnie, director of the Consumers' Association, said: "The only winners in this debacle are the lenders. They had no legal liability for the sale of these schemes and cannot be sued for redress, but they are still earning a huge amount of interest on these loans."

Halifax told BBC News Online that it had a "few hundred" people paying back these home income plans, but it said it had taken steps to cut their debt.

A spokesman said it had reduced the rate of interest to below the Bank of England base rate.

It also said it would promise not to repossess their homes or pass on the debt to the borrower's estate if the amount owed was greater than the property's value when they died.