Taking over parent's mortgage...

StrangeRover

Hi,

I wonder if anyone out there can give me some guidance on this situation?

My mother, aged 74, is living on her own and is currently paying off her own mortgage. The house is worth approx. £180,000 and her mortgage is approx. £27,000.

My brother and I (in full agreement with her) would like to either take in the mortgage or apply for a mortgage in just our names and she would then have her name removed from the deeds. My mother would live in the house until the end of her days.

My credit record is not squeaky clean as I have 2 CCJs (but I am told these will disappear off the radar in a couple of years time), so speaking to my financial advisor he tells me that my brother would be able to easily afford the mortgage on his own salary.

I would then (some years later, when credit record is clean) get added to the mortgage.

My FA tells me there is a product from Abbey that allows a relative to live in the property whilst the mortgage is paid by someone else. Of course, there is the requirement that this person in the property would be subject to a 'tenancy' agreement, otherwise they would effectively inherit someone who could claim squatter's rights (they won't like that!)

Regardless of this proposal, my mother intends to leave the house to my brother and I, but it just seems to make more sense to avoid later paperwork draw a line under it now (we all feel the same way)

So, question is, are we approaching this in the right way, is it possible? It seems mad to leave her paying what is an un-competitive rate out of her own money when my brother and I have more than sufficient funds to take it on, over a longer period....

I guess with the value of the house inheritance tax is not a problem - what are the mechanics of this (I have heard about 'gifting', but I am not sure if that is relevant in this scenario)

Any thoughts would be appreciated!

Thanks in advance.

Comyface

Hi Strange

The first thing I thought of when i read your post was 'What if mum needs care in years to come?'.

I may be wrong but, even if she has sold/gifted the house to you and your brother but continued to live in it, it may still need to be sold to pay care home fees if the need arises in the future.

Is this something you have discussed with your solicitor? Or if I'm completely wrong, I'm happy to be corrected.:o

bingibongi

& if you or your brother go bankrupt or get divorced or have debts that can be enforced through the courts, or hit hard times and cant keep up mortage payments, the house is up for grabs and your mum could be left homeless. Not to mention the capital gains tax implications for you both when you sell the property.

If you and your brother have the funds why not just pay the monthly payments for her - there is no need for you to take ownership of the property.

StrangeRover

OK, in answer to the first poster, all three of us have talked at length about the final years of mother's life and we are all agreed that as the house is an asset it would (and should) be sacrificed to pay for her medical care. Mum does come first in all of this.

With regards to the second poster, agreed, we could do this. The amount is easily affordable. Mother however would like to be free of the house from a deed and mortgage point of view and doesn't want it leaving family hands.

I think she just wants rid of the mortgage responsibilities, but wants to know it's in the hands of her sons (who she would eventually leave it to anyway)

Does that clarify things?

Thanks for your responses.

Radiantsoul

It would be very difficult if your brother ever faced financial difficulties. The result might be that the house is lost and your mother would be evicted.

It appears the house is not your primary residents and so their might be capital gains tax liabilities if and when the house is sold. I assume your plan is you and your brother jointly own the property, but the mortgage is in your brothers name. I suppose the risk is that you are relying on him continuing to repay the mortgage and he is reliant on the fact you will indemnify him for the mortgage payments that he is making.

In terms of tax I am also not clear if your mother will pay any rent. If so you will be liabile to pay tax on that income, but will be able to offset interest expenses against it. If she pays no rent then there will be no income against which to offset interest payments. I feel you would probably want to charge rent equal to the mortgage interest element.

My opinion is you probably need to consult an accountant who specialise in tax as this is not a straightforward issue. My gut feeling is there is not a huge advantage as their is a substantial risk to your mother residence, you will probably increase your tax liability(CGT) on eventual sale and the legal process is likely to be quite complex. I cann't see there is much gain over simply paying your mothers mortgage. And presumably the Abbey mortgage has quite high fees.

StrangeRover

From the point of view with regards to mother's security, she is quite happy to pass on the liability. We have explained coldly to her, the worst case scenario and she is well aware of this - trust me; it's a responsibility that my brother and I take very seriously.

What are your thoughts on 'gifting' the house?

Can this only be done if there is no outstanding mortgage on a property?

If yes, then this is not an option, but if no and it can be gifted with an outstanding liability, then would it just mean either my either my brother (well, actually my brother as my CR is not clean until 2011) would then need to apply for a mortgage on the property in the usual fashion?

Lot's of questions, I know, but your responses *are* sinking in!

Thanks for the replies.

McKneff

She cant gift it if there is an outstanding mortgage on it. As far as i am aware anyway. I tended to look at it in my position that i did not own my house until i paid the last mortgage payment on it.

After that she can but if it came to the point after that when she needed to claim means tested benefits, care home etc she would still be treated as if she
owned the asset.

Certainly the easiest way out if its affordable is for her children to just pay the mortgage for her and for her to make a will leaving the house equally to all

StrangeRover

Thanks for the reply McKneff, I understand what you are saying in principle, but I also understand that this decision would also be down to the mortgage company and their discretion as to how they viewed it.

We are going to approach them (iron no.2 in the fire) and see what they say.

Whether, that would un-freeze the current financial situation if brother was added to the mortgage, I don't know, we can but ask, I guess.

Thanks for the reply.

McKneff

Your welcome.

Be careful just putting just one brother on the mortgage. My family did that and although we trusted him completely we didnt check about whether the mortgage was joint tenancy or tenants in common. It was a joint tenancy and when fil died the house legally went to brother and he kept the lot. The rest of the siblings didnt have a legal leg to stand on. Lost his family in the back lash but it happens in families sometimes. It was an expensive lesson learned.
Good luck, hope everything works out for you all.