parents in bother.. can they remortgage?

noodle

sorry... this is a long one...

my father has recently had a serious accident and is consequently laid up in a hospital bed, currently unable to do much with his arms or legs. we are optimistic that he'll get back to decent physical health, so let's try and forget that whole business.

whilst he's out of order, my sister and i decided to make sure that he was up to date on bills etc. we thought there would be about £5k of credit card debt that we could pay off so that neither he nor my mother would need to be worried.

mum dropped off the credit card statements yesterday and there's about £32k outstanding (at an average interest rate of about 19%). believe me... if he wasn't already in a hospital bed then i'd be ready to put him in one!!

he's been making the minimum payments with no hassle, and minor inroads into the capital. it needs sorting out though. his income is around £2,500 a month - half from a pension (which is secure) and half from employment (which, even if he wasn't unfit for work, is not secure). the credit card payments are around £750 a month, other commitments are around £200 a month.

although my sister and i could just about bail them out we're not prepared to do so - neither of us is willing to annihilate our savings/security because they've been irresponsible. also (and mainly), they own a house with a peppercorn mortgage... so they can bail themselves out. however, it will fall on me and my sister to make all the arrangements.

in theory its simple... walk into a bank and raise a £32k mortgage at 4% over (say) five years. the repayments will be lower than the credit card payments, and contain a far higher element of capital repayment. i don't know the house value - but it's probably £150k+, so there's loads of equity.

here are my concerns/questions... and if anyone has experiences or advice then they could really help.

• dad is 61, mum is 58. How much will their ages affect their ability to remortgage?

• dad's income from employment is unsecure. he works for a friend who will pay him whilst he's ill for as long as possible.. but the business itself might need to be wound down in the near future. with the wages he can comfortably make payments and live life... without it things are much tighter. whilst my sister and i are not willing to write a cheque for £32k - we would be willing to make their monthly mortgage payments if required... but would a lender accept that? nat west, who have the existing mortgage, have told me that they won't accept any 'guarantee'... is this the norm?

• my biggest fear, however, is that there's a reason beyond stupidity why dad hasn't already done this... and that he's messed up his credit rating too badly for a bank to allow a mortgage. could this be the case... even with so much equity? if it is, can my sister and i help them borrow? we both have high disposable incomes and are financially secure... but don't want to borrow in our own names against our own assets (i don't have much equity in any case).

i've not spoken to either of my parents about this yet, so i know i don't have all the facts i need - but the more ideas and info i have before that conversation the better.

lastly, i've no interest in doing anything that would protect any future inheritance or compromise my parents’ financial independence. i've already told them to spend the inheritance, and i don't want them signing the house over to us or anything of that nature. i just need to help them get things sorted so they're not throwing hundreds of pound a month away on interest, and they're not plunged into crisis if dad's wages stop.

Mrs_Bumble

Ooops! Sorry about the accident and the shock that you and your sister must have had when the credit card statements were dropped off!

Without knowing what their credit history is like it is of course difficult to say for definite, but you can of course go round and help your mum apply for their credit report?

Is your mum working? If so what sort of income?

Your Dad's pension do you know how much that is per year/month etc, as I think any calculations need to be done on this basis as it doesn't sound like the employed income can be relied upon.

Obviously once you see their credit report you can be sure that there aren't any other little gems out there!

Check the property valuation as well, you can use sites like https://www.zoopla.co.uk

RufusA

Sorry to hear about your father, I hope he makes a speedy and full recovery.

It's not usually a good idea to transfer unsecure debts on a secure (property) basis if you can help it, as if they default, the consequences are much further reaching!

Given the size of debts, and his future income I would recommend him seeking debt advice. Somewhere like the CCCS (a charitable organisation) would be a good start.

The solution may me something like a Debt Management Plan. It will impact his credit rating, but should be a viable way out. If you want to discuss these types of options the Debt Free Wannabe board is a good place.

HTH - Rufus.

noodle

RufusA wrote: »

Sorry to hear about your father, I hope he makes a speedy and full recovery.

It's not usually a good idea to transfer unsecure debts on a secure (property) basis if you can help it, as if they default, the consequences are much further reaching!

Given the size of debts, and his future income I would recommend him seeking debt advice. Somewhere like the CCCS (a charitable organisation) would be a good start.

The solution may me something like a Debt Management Plan. It will impact his credit rating, but should be a viable way out. If you want to discuss these types of options the Debt Free Wannabe board is a good place.

HTH - Rufus.

thanks rufus.

i am keen to avoid going down any route that involves compromising on some of the debt. whilst i am very angry that the 'credit industry' allowed this to happen, i think that my parents are responsible for the situation, and as they have more than enough 'wealth' to pay what they owe i think they should do so. if they don't then go and do it all over again, the only potential losers will be me and my siblings when it comes to inheritance time - and i don't mind that, and hope that's still many many years away

raising money secured on the property isn't ideal... but as long as they don't run up more debt the repayments will never be a problem because my sister and i can happily find £600 a month (which is quite different to forking out £16k each up front). i see this as the best way to secure as low an interest rate as possible, which ultimately provides the most cost effective escape route.

noodle

Mrs_Bumble wrote: »

Ooops! Sorry about the accident and the shock that you and your sister must have had when the credit card statements were dropped off!

Without knowing what their credit history is like it is of course difficult to say for definite, but you can of course go round and help your mum apply for their credit report?

Is your mum working? If so what sort of income?

Your Dad's pension do you know how much that is per year/month etc, as I think any calculations need to be done on this basis as it doesn't sound like the employed income can be relied upon.

Obviously once you see their credit report you can be sure that there aren't any other little gems out there!

thanks. there's an identical property up for sale at £144k, so i wasn't far off.

my mum works term time but the income isn't much and mainly just funds her own life (including car finance payments, which is their only other debt).

dad's pension is about £1,260 a month. he's on a 'draw down' so could probably increase that - although his 'pot' has taken a hammering so i wouldn't want him to do that. i think you're right that this is the main source of income that a lender would look at - assuming they do a check on the long-term security of his wages (£1,200 a month).

i'll take steps to get a credit report, but i have bank statements and there's no indication of anything else out there and it's not as if they have assets that have 'appeared' can cause me concern (fingers crossed).

Mrs_Bumble

I think you need to collate as much information as you can, i know that you don't think there is anything else out there but best to get the credit report as it will show if there have been prior problems, missed payments etc.

bank statements
pension statements
credit report
now if your mum is to be on the borrowing then would need to take her income into account plus it would then need to deduct whatever the car finance is so will reduce borrowing.

Take all information to a good, whole of market, independent mortgage broker who can talk through all the options, including the downside of attaching debt to a security.

Cannon_Fodder

Until you discover the source of the debts, and have a frank discussion on why they chose to allow it to remain/grow, you cannot make any plans, imo.

One, or both, of your parents need to be clear about where the £32k disappeared to...is there a secret gambling issue, do they buy lots of shoes...

The fact you are "taking the bull by the horns" now, rather than your mother, does raise a question mark. It could just be she's not good with figures, but is there a more serious "denial" issue...whether doing the spending herself, or hiding your father's spending habits, needs to be revealed.

If that root cause is not dealt with, and the problem returns, then having gone done a particular path towards a solution, you may find you have tied them, and yourselves, into a bad option.

60 is the age to be finishing a mortgage, not starting one. Agree with the comments about keeping it unsecured. You don't know what might happen, in even 5 years, to change your family's combined financial position. To lose the house over 1/5th of the value would be terrible.

happybroker

there is also the lifetime mortgage route that could be looked at, Your not going to get too far whilst your Dad is in the hospital I guess but an appointment with a quality IFA or mortgage broker who deals in lifetime mortgage also will be time well spent I feel.

p00hsticks

noodle wrote: »

dad is 61, mum is 58. How much will their ages affect their ability to remortgage?

I've no personal experience, but this recent news story suggests that they might not find it very easy - although if you are only looking at a five year term they might just scrape in.......

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/6094989/Retired-home-owners-face-repossession-as-banks-refuse-to-extend-mortgages.html

getmore4less

Cannon Fodder hit the nail on the head

Find the root cause of the debt first.


If prepared to pay £600 to a mortgage why not just give them £600 towards the debt on the understanding they budget, have their spends supervised and they contribute as much(£750) as they pay now.

Even at 19% average the debt will be cleared in 2.5years.

They still have a minimum £500pm + mums money to live off for those 2.5years, will need some cutbacks but thats the lesson they need to learn.

EdInvestor

noodle wrote: »

whilst he's out of order, my sister and i decided to make sure that he was up to date on bills etc. we thought there would be about £5k of credit card debt that we could pay off so that neither he nor my mother would need to be worried.

It's really very un wise to interfere in other people's financial affairs without permission.

believe me... if he wasn't already in a hospital bed then i'd be ready to put him in one!!

It's your parents' business, not yours..

he's been making the minimum payments with no hassle, and minor inroads into the capital.

So there is no crisis.Why are you creating one?Do you think it will help him get well?

although my sister and i could just about bail them out we're not prepared to do so

And nor is it required.

- neither of us is willing to annihilate our savings/security because they've been irresponsible.

They may not have been irresponsible at all.

, they own a house with a peppercorn mortgage... so they can bail themselves out.

They don't need bailing out if their debts are 5 times covered by their assets.

however, it will fall on me and my sister to make all the arrangements.

Why?

in theory its simple... walk into a bank and raise a £32k mortgage at 4% over (say) five years. the repayments will be lower than the credit card payments, and contain a far higher element of capital repayment.

Consolidation of debt into mortgages is one of the WORST ways of approaching debt , so that just shows us how much you know about finance doesn't it?

I suggest you leave your parents financial affairs well alone.They are not in crisis and are well placed to deal with the debt over the ensuing years.If your father is running a drawdown pension it is is likely he has quite a sophisticated grasp of investment .

This is more than we can say about you.