HELP-Sister trying to cash in on Dads home

gord115

My Dad (71)is a widower living in a bungalow worth about 150-160K. The mortgage is paid off but he is struggling for money.
He wants to borrow £10000 and we looked into an equity release scheme. They wanted £2000 to set up an equity release scheme that would let him have £10000 upwards and charge 6% interest every year and take the money from the sale of his home when he died. The rest of the money from his home would be split between myself and my 3 sisters.
I looked into it and the scheme came highly recommended by "help the aged."
Now though my sister has has offered to lend him 10k for an extra 20% share in the house when he dies.This means she will get 40% of the house. (money devided by 5 instead of 4 and her getting 2 shares)
If the house is worth 170K she will get 2 shares worth 34k each.
So she will get £34000 for lending him £10000.
My other sisters and I have tried to explain to him she is taking advantage but he seems reluctant to listen. Any advice?

lauren_1

It may seem like she is taking advantage on your side but these equity release schemes are not exactly the best option either, the value of his house may and most probably go down but you are left woth the intrest on the origonal value.

If you are so concerned about him being taken advantage of why dont you and you other sister dig in to your own pockets to help him out?

bajangal

This type of scheme was on a "credit crunch" documentary last week. A woman wanted money out of her home to go on holiday. She ended up losing her home and she didn't get the lump sum. She hadn't read the small print. For your father's sake, please make sure everything is fully covered and understood. Not many company's hand over money and just sit back and wait for someone to die to recoup it.

lisyloo

Has your Dad considered downsizing.

My in-laws moved from a 3 bed house to a 2 bed "sheltered" flat.
It means they don't have to worry about gardening, building maintenance etc.
Although of course there is a service charge.
There's is around £40 per week, but that include buildings insurance, maintenance, on-call system, warden, use of laudry, communal facilities e.g. lounge.

As well as cheaper bills and less work (less clenaing and maintenance).
This freed up £36K for them and also they get a great deal more company.
There is an on-call system which your Dad might not need now, but my MIL has fallen a few times and needed to use it.

If it seems too early for this, then what about moving to a smaller property or a cheaper area of town?

Bear in mind that whilst your sisters maths may seem a little awry, she has no guanrantee of when she will get it back.
In fact if she is relying on a will, she is very unwise as lots of things could happen to her share (like your Dad getting married, changing his mind, falling out or leaving it to the cats home).
You might think he is unlikely to marry at his age, but elderly people do sometimes find a toy boy/girl - it does happen.

EdInvestor

gord115 wrote: »

He wants to borrow £10000 and we looked into an equity release scheme. They wanted £2000 to set up an equity release scheme that would let him have £10000 upwards and charge 6% interest every year and take the money from the sale of his home when he died.

If he lived for 10 years, the total cost of this would be 17,908.

Now though my sister has has offered to lend him 10k for an extra 20% share in the house when he dies.This means she will get 40% of the house. (money devided by 5 instead of 4 and her getting 2 shares)If the house is worth 170K she will get 2 shares worth 34k each.So she will get £34000 for lending him £10000.

So the sister's plan would cost almost double.

MrsE_2

gord115 wrote: »

Now though my sister has has offered to lend him 10k for an extra 20% share in the house when he dies.This means she will get 40% of the house. (money devided by 5 instead of 4 and her getting 2 shares)
If the house is worth 170K she will get 2 shares worth 34k each.
So she will get £34000 for lending him £10000.
My other sisters and I have tried to explain to him she is taking advantage but he seems reluctant to listen. Any advice?

The maths is a little off here.

At present you are 4 children getting 25% each. If you do it your sisters way, then you all get 20% & she gets 40%, so she gets an extra 15%. It really doesn't matter what the house will be worth when you sell it, what matters is what its worth now.

IF she did lend him 10k, she would be lending him nearly 7% of the value.
Could you not do it so that she got 31% of the end value & the other 3 got 23% each?
That gives her an extra 1% on top for her trouble?

dimbo61

My dad sold his 3 bedroom home 2 years ago at the age of 72 and moved into a sheltered one bedroom flat.
one of the best things he ever did ( after having such a great son !!! )
He is chairman of the residents committee and also helps with the gardens.
He has enjoyed lots of hoildays with the money from his home and we are all happy to see him enjoying his old age without money worries.
He earned the money and should damm well enjoy it.
Take him round a few flats in thye area

Oldernotwiser

MrsE wrote: »

The maths is a little off here.

At present you are 4 children getting 25% each. If you do it your sisters way, then you all get 20% & she gets 40%, so she gets an extra 15%. It really doesn't matter what the house will be worth when you sell it, what matters is what its worth now.

IF she did lend him 10k, she would be lending him nearly 7% of the value.
Could you not do it so that she got 31% of the end value & the other 3 got 23% each?
That gives her an extra 1% on top for her trouble?

Don't forget that the sister's losing interest on this £10,000 for as long as dad lives. 5% of £10,000 is more than £5,000 over 10 years. If she's borrowing it, it'll be costing even more.

However, much better for dad to move as suggested or for everybody to come up with £2,500 each. If the others can't help out that's really their problem or it might be in their interest to borrow the smaller amount.

Rabiddog_2

Why doesn't she just get her £10,000 (plus say 5% interest per annum) back when the house is sold? then the remaining amount is split 4 ways?

N.B. I make no charge for this advice, despite being boracic

N.N.B. No, I'm not from Croatia

lauren_1

So the sister's plan would cost almost double.

Cost who double??

It wont cost the dad a penny to borrow from his daughter.
It would cost the daughter lost interest on the 10k, and it would put a few noses out of joint when it came to dividing up the house. But it just smacks of money grabbing selfishness, your dad is struggling, your sister has offered to help but on the condition that she recoups some extra when he dies which ois fair enough, 10k is a lot to give away even if it is to a family member.

lisyloo

I think the "double" refers to the fact that her "lost opportunity cost" is £17K and she gets £34K based on the assumption that he lives 10 years.

What you need to bear in mind is

1) He may live for ages and the house may have to be sold to pay for long term care, so she might get nothing.
2) He might live for 20 years and then she is probably worse off.
3) If he dies earlier and she makes a massive profit then she's perceived as money grabbing (she might be but she might also be a bit naive and just trying to help).

The whole thing is quite risky

Best options are

1) Downsize. Only fees are estates agents, legal and solicitors.
2) Everyone puts in the same (BTW - cash might stop he getting benefits).
3) She lends him £10K at an agreed rate e.g. BOE + 1%??, then she gets that back. Then the remainder is split.

Personally I think 1) is the best options especially as health is likely to deteriorate in older age.
2) and 3) are risky.
What is someone needs their money back and can't get it?
You could have ex's wanting assets at divorce etc.
It's a complete minefield to get family involved.

If he's dies early and she gets a good deal, other family memeber will be agreived without appreicating the other side of the coins e.g. the risks she taking.

If he really doesn't want to move then equity release is better than family feuds IMO.
At least if some banker gets rich, you can all still retain family relations.
But for the in-laws downsizing was a great move.
They lack storage space and can do a lot in the way of entertaining but it's much more suitable for them now they are 80 (and don't forget he's likely to go downhill - sad but true).