Mrs A's Debt Diary

jessicamb

Sorry to worry you - if his whole estate is below a certain level (used to be 140k) then the whole thing is null and void and you dont have to worry at all.
Same if he lives 7 years after giving you it. There are just some funny rules about people giving things away then continuing to receive the benefit of them - meant to stop people leaving country estates to their children and then living in them just as before to avoid paying taxes but with rising house prices it can catch people with smaller 'estates' too.

Due to the sums involved sounds like it would work - I guess if he had the whole amount he would have bought the place.

Just another quick question - if your OH is retiring in 15 years (and I'm guessing you are of a similar age so apologies if I'm totally off the mark) would you take a mortgage over the remainder of that period or fund it with your pensions?

ZTD

Mrs_A. wrote:

Anyway on my personal debt front i have been having so much fun spending my dads cash decorating his wee house. he has a local authority 2 bedroom cottage and now thats its mostly decorated it looks very appealing to me and Mr A as a possible place to retire too in 15 years when we need to find somewhere else to live (we currently reside in a tied house that will go when Mr A retires from his work). Dad has been nagging us for the last 3 or 4 years to buy his house to give us a wee nest egg and somewhere to live in the future, only problem is our debts. upon chatting to dad today we have decided to now seriously consider taking the plunge and buy his house. so our new aim is to get debt free as soon as we can to take the mortgage plunge, dad says he could afford a down payment as his share and would like to live rent free once we buy. it sounds like a plan to me.
what do you guys think?
regards
Mrs A

Please don't take this personally. Sometimes, I feel like the Grim Reaper at Granny's bingo night... :eek:

And this will probably start a flame war.

And this is all in my humble opinion.

Just let me get this deal straight.

1. You buy your Father's house
2. He lives in it for an unspecified period of time. Implication: until he dies. How far away is that?
3. He pays no rent
4. You repair the house
5. You pay the interest and principle on the mortgage
6. You can't live in the house until your father dies, so you will need to pay mortgage/rent on a second property
7. You can't sell the house if you get into trouble, because your father lives there

You are taking a lot of risk, and leaving yourself few options. I believe there was a thread on someone who did almost exactly the same, and ended up feeling very low and suicidal. I must admit, I didn't read it all, because I found it rather distressing.

What is in this for you? It's not yield, your father pays nothing, yet you have to pay interest + capital on 2 mortgages. Plus repairs.

Let me guess - capital appreciation.

Take a look at this graph


from here

You can see that the long-term average is about 4 (a smidge less, but 4 is a nice round no). You can see the peaks above the average. When the peaks end, you can see the troughs below the average. There are only three ways this ratio will drop.

1. House Prices Drop
2. Wages Rise
3. Or a bit of both

For this ratio to drop from 6 (the current level) to 4 (the long term average) everbody's wages will need to rise 50%. How likely is that?

For this ratio to drop from 6 (the current level) to 3 (the dip after the 80's bust) everbody's wages will need to rise 100% - i.e. double. How likely is that?

Alternatively, house prices could drop by a third in the first instance, or drop by half in the second instance. Like Japan. This will probably affect your plans for capital appreciation. Unfortunately, when house prices drop, your mortgage doesn't drop with them.

Of course this is all in constant pounds. The Govt may unleash inflation to muddy and obscure the nominal figures (i.e. your wage doubles but buys no more than before, while your house price stays the same - halves in real terms), but in constant pounds, the figures remain the same. (i.e. the 70's)

If that hasn't put you off, let me know, and I'll start part two. Interest rates.

gallygirl

:eek: OOOOHHHH ZTD you really do sound like the grim reaper!!!

Mrs A's family has a reasonable income but ahsn't been able to get on the housing ladder. As Mr A has about 15 years to retirement and they still have debts to pay off it seems unlikely they would be able to save for a deposit and afford a suitable property - and i sems a bit silly as they have a free tied house at the moment. However, in 15 yrs they'll be homeless - the council will have a duty to house tehm but as there will only be the 2 of them they could end up ina grotty flat on a druggie estate.:eek: :eek:

This way they get a foot on the ladder and a say in their own destiny.

However Mrs A I agree you need to look at this carefully. if your dad was to buy the place he would get a discount from the council, but you seem to be saying you woiuld be buying it? Why would the council sell it to you? Could you buy it as joint owners instead? You need to discuss the options with the council's housing or legal dept.

But good luck!!!

ZTD

ali007 wrote:

:eek: OOOOHHHH ZTD you really do sound like the grim reaper!!!

And there is no smiley for it. A shocking omission. :santa2: <- doesn't quite cut it.

ali007 wrote:

Mrs A's family has a reasonable income but ahsn't been able to get on the housing ladder. As Mr A has about 15 years to retirement and they still have debts to pay off it seems unlikely they would be able to save for a deposit and afford a suitable property - and i sems a bit silly as they have a free tied house at the moment.

Why would it be silly to have savings? There are very few circumstances where they come in wrong.

ali007 wrote:

However, in 15 yrs they'll be homeless - the council will have a duty to house tehm but as there will only be the 2 of them they could end up ina grotty flat on a druggie estate.:eek: :eek:

This way they get a foot on the ladder and a say in their own destiny.

I'm not saying that buying your own house is neccesarily a bad idea - though I have reservations about the timing (PM me if you want the explanation/calculations). However, they aren't. They are buying a house for the father to live in - and rent free at that.

See this for the other side of that.

It is a gamble for continued appreciation of house prices, and too many people are gambling like that for it to happen. I know of someone - a single mother earning <20K - who has £300,000+ worth of mortgages over 3 properties. If I know her, how many other people are trying the same thing? If you're buying a house, then fine, if you're buying an "investment" then you've left it too late. Wait for the bust, then try again.

ali007 wrote:

However Mrs A I agree you need to look at this carefully. if your dad was to buy the place he would get a discount from the council, but you seem to be saying you woiuld be buying it? Why would the council sell it to you? Could you buy it as joint owners instead? You need to discuss the options with the council's housing or legal dept.

You also need to calculate at which base rate, you will go bust at - and don't forget your unsecured loans as well. Then go back over time, and see how often that interest rate has occurred. The highest nominal interest rate has been 17% - but that was only 3.6% over the rate of inflation. Highest over the rate of inflation has been 8.98%

History isn't a 100% reliable predictor of the future, but it still is the best one.

Floss

Mrs A's dad is planning to put £20k into the deal - that is in lieu of rent as he will be paying deposit for mortgage. This will include him in the purchase from the LA - he will qualify for the discount available, probably £20-25k maximum (check with Housing Dept). They do not have any other housing costs as they currently live in a tied house, until Mr A's retirement in 15 years.

Why shouldn't they plan for their future? Other people who are not DFW do, so why shouldn't Mr & Mrs A have a plan to aim for to deal with a problem that will become very real in time.

I think it's a good idea, that needs a lot of thought, discussion & advice, but if it all comes to fruition will be a great investment for your future. And your dad can have the spare room if he's still there when Mr A retires!

BTW, I think your diary is great, and I'd miss it on my daily trawl through the posts if you let it die....

Mrs_A.

well to clarify on a point or two mr a indeed retires at 65 in 15 years time, i am 35 so have a good few years of work left ideally 25-30 to fund mortgage payments, dad and i will buy the house together the 20k as a downpayment is indeed in leiu of future rent dad is only 67 by the way, our youngest little A will be 16 in a few months so not planning on any kids being around in 15 years when mr A retires so indeed Mr A and I could indeed share the house until such times as dad dies or needs full time nursing care or whatever not trying to be morbid just trying to cover all the angles. Although dad will not be paying rent he will be paying council tax all bills and most maintenance of the house. we have all discussed this at length as indeed this is the only way onto the property ladder we have and there is actually a 20 year wait for a council house in this district so a grotty flat on a druggie infested estate probably wouldnt happen as they are all full of people on the list as it is more llikely to be placed in bed and breakfast as we will have no kids at home by that time.
it seems like a sound investement to all three of us as our mortgage would actually be less than our debt repayments at present.
thanks to all of you for your posts and suggestions
regards
Mrs A

gallygirl

Glad you're feeling so positive Mrs A.

ZTD - didn't mean silly to have savings (if so, wish I was the silliest person living in Sillyland with every day ending in -silly), meant no point buying somewhere for Mr & Mrs A & all the little a's to live in now when they have free accomm.

What is position re council discount Mrs A?

Mrs_A.

hi
dad will be entitled to a 10% discount house currently worth in total excluding discounts 105k
regards
mrs A

jessicamb

If it makes you and your OH happy then I really hope it all works out for you. Even though its mortgaged up to the hilt and I could probably only call about two bricks of it mine its lovely to have your 'own' home that you can do what you want to.

Mrs_A.

hi peoples,
i'm feeling very motivated today in my dfw quest, which is good because i go back to work on monday after the last two weeks of being on holidays and spending very little of my own money which has been great. not looking forward to going back to work though but i guess everyone feels like that.
cant seem to get the family on board with the spending diary thing, hubby keeps buying the odd thing and not telling me how much it was so i have been guestimating it.
looking forward to august and beginning my new revised budget where i shall be making serious dents in my debts. but feeling a bit middle of the monthy where theres no money left and debts havent came down recently but reading other diaries everyone seems to feel a bit like that. just visisted my cousin and her hubby who went to their sister in laws for week down south and they bought a brand new top of the range digital camera and everything to go with it and spend £500 doing up the sister in laws garden for her because she is a bit older that her and cant manage so well, they spend loads of money on to be honest just rubbish that they didnt need, my cousins hubby will be saying in 3 to 6 months i need a new digital camera cos this one diesnt do this or this one doesnt do that. before i would have been really jealous but i thought to myself they have stuck it all on their credit cards so im trying not to be smug about it saying that we stayed at home and spent very little, our greatest extravegance of the fortnight was £20 for lunch out in a pub for three of us, that is probably their interest charge for this month. am i being a jealous !!!!! here or what!!!!!
i guess i am learning but its hard when you are the one in the family who continually keeps saying no to everything but i try and focus on the day when i can proudly say "MY NAME IS MRS A AND I DONT OWE A PENNY TO ANYONE". it is going to be a long haul but i will get there.
hope everyone is having a cheap day.
must go and menu plan for the week and see what i need from the shops
regards
Mrs A