What type of mortgage do my parents need?

djbmj

Hi

I hope I have put this in the right forum and that somebody can help?!

My parents own a home with their mortgage completely paid off now (worth aprox 100k). My mums mum passed away last year leaving my parents her bungalow (worth aprox 130k). They want to move there but it needs work doing to it including building an extension, rewiring, replumbing and redecoration. They need aprox 30 - 40k to do everything they want to do. They want to sell their house to do the work, which is fair enough, but I would like to see them keep the house and rent it out to give them an extra income for later in life. Is there a mortgage that will release up to 40k equity from the house or bungalow that doesnt mean losing ownership of the property? Equity release schemes, if i understand them correctly, mean in the end the bank owns the property and this is not desirable either.

Can anybody suggest a way out of this situation that gives them the 40k they need yet retain ownership of both properties?

Thankyou in advance for any help you can give.

dimbo61

You dont give your mum and dads age ( are they still working ? )but it should be easy for them to get a mortgage or loan on either of the properties in order to do up the bungalow.
If they get a Buy to Let mortgage on there existing property and rent out the property then they can put the interest paid against the profit from renting.
Speak to a whole of market mortgage broker to get good advice as you want to offset as much of the interest as possible

djbmj

Mum works and dad is self employed. It would be hoped though that the rent would pay for the mortgage payments. would a buy to let mortgage take this into consideration instead of their income?

I admit they dont really want a mortgage at this stage in their life, its me that thinks this would be a better option in the long run for them so want to give them as much info as possible.

The only other option I can think of would be for them to gift the house to me and then I'd get a mortgage, give them the money and I'd rent it out. I don't know what ramifications this would entail though.

kippygirl

But if they don't want a mortgage then why pressure them into this? They may well not thank you for this in the future. Interest rates are likely to be rising in the next few years and to then become a landlord as well is even more potential hassle for them (and quite possible that tax changes etc will make this more difficult and less profitable than it has been previously). £40K on upgrading and £60 nest egg (invested elsewhere) seems like a good plan to me.

As for them gifting the house to you, any solicitor would advise them against this. Even if they are 100% convinced (and correct) in thinking that you have their best interests at heart now and in the future, if you were to get married and then divorced the house would count as part of your assets and be up for grabs in any divorce settlement with a starting point of a 50:50 split in assets.

djbmj

Thankyou Kippygirl

I really don't want to pressure my parents into doing something they dont want to, if thats the route they want to take I would never stop them. I just want them to have all the info possible before making a decision, either way, that they may regret in the future.

In my mind selling now, in a depressed market, is not the best idea. I just thought that if they could release the 40k they need whilst retaining ownership and renting it out would be a better solution in the long run. We have never had much money in our family and with both of my parents nearing retirement age they will only have their state pension to live on. I saw the 2nd house as a way of generating a bit more income for them.

If anybody can give me a compelling reasons for and against each option I would be more than happy to listen and pass it on. I am no whizz with money/property myself so any advice is readily taken onboard.

getmore4less

djbmj wrote: »

Hi

I hope I have put this in the right forum and that somebody can help?!

My parents own a home with their mortgage completely paid off now (worth aprox 100k). My mums mum passed away last year leaving my parents her bungalow (worth aprox 130k). They want to move there but it needs work doing to it including building an extension, rewiring, replumbing and redecoration. They need aprox 30 - 40k to do everything they want to do. They want to sell their house to do the work, which is fair enough, but I would like to see them keep the house and rent it out to give them an extra income for later in life. Is there a mortgage that will release up to 40k equity from the house or bungalow that doesnt mean losing ownership of the property? Equity release schemes, if i understand them correctly, mean in the end the bank owns the property and this is not desirable either.

Can anybody suggest a way out of this situation that gives them the 40k they need yet retain ownership of both properties?

Thankyou in advance for any help you can give.

So how much will this rent for?

With £40k+ mortgage and other costs there will not be a lot income left.

Do they/you have any idea how much work being a landlord can be?


Investigate what there income will be in retirement, might qualify for some benifits credits if there is just the state pensions, this income/assets might scupper that.

Might be better off releasing the £60k and having a good time.

Obviously less attractive than the possibility of them leaving 2 houses to their kids

djbmj

It will rent for aprox 400-450 per mth.

djbmj

No you are right the income from rent will cover mortgage but won't give them income for foreseeable future. Perhaps you are all right to say enjoy/invest the money. I wasn't thinking about them leaving 2 houses to us kids I really did think that owning 2 houses would give them a better return.

LittleMissAspie

If they borrowed 40k over 10 years at 4% it will cost around £410 to pay back. But if they become landlords don't forget they'll have to pay agency fees, general maintenance, legal obligations (eg yearly gas check) and if they get into a dispute with a bad tenant they may have to pay for cleaning or repairs out of their own pocket.

Do they actually want the hassle of looking after two properties? How about getting a small mortgage over the shortest time possible to do the basics (wiring, plumbing) on the bungalow so they can move in, then sell their current house and use the money to finish the bungalow (extension, redecorating). They could then invest the rest to give them a top up to their monthly pension.

Oldernotwiser

Getting an additional income may not be beneficial to them as it will affect their ability to claim Pension Credit when they retire.

Thrugelmir

djbmj wrote: »

In my mind selling now, in a depressed market, is not the best idea. I just thought that if they could release the 40k they need whilst retaining ownership and renting it out would be a better solution in the long run. We have never had much money in our family and with both of my parents nearing retirement age they will only have their state pension to live on. I saw the 2nd house as a way of generating a bit more income for them.

Property is hardly a depressed market at the moment. No doubt your parents have made a considerable gain since originally purchasing the property. You should be helping them secure a comfortable future than speculating on the way property will move in the future.

My personal opinion would be to sell the existing property and invest the free capital into either ISA's or personal pension plans into a mix of investments. That can be drawn upon when they retire.