No way of paying off mortgage in 2 years

TheBombshellCall

Hi
Had a call from my in-laws this evening, they are 71 and 72. They've been to the bank today and their mortgage ends in 2 years and they have no way of paying back the £34K they owe on the house. The house is worth about £70K. They've asked us to buy it for them and we can keep any equity when they die.
My husband and I are not keen to buy the house as we have small children and job security is an issue in the current climate and it just seems like a world of hurt we don't want to get into. We would be stretched to raise the money ourselves.
What is a concern though is that they bought the house about 14 years ago with a mortgage of about £20K. In all this time nothing's been paid off and it has only increased in the period with regular further lending by the bank.
They get a state pension, FIL has small forces pension and a part time job 12 hours a week. I am staggered that the bank has been continuously lending to pensioners during this time without any repayment vehicle in place to repay the mortgage.
I'm really looking for some advice as to where to start and what to do next. My in-laws have given me the contact at the bank to discuss taking over the mortgage but that's just not going to happen on our part.
Any help very gratefully received.

withabix

TheBombshellCall wrote: »

I am staggered that the bank has been continuously lending to pensioners during this time without any repayment vehicle in place to repay the mortgage.

They have a repayment vehicle. The house. That is one of the reasons people buy property.

They have been borrowing against it to fund their old age. That's why the mortgage has increased.

Have they considered selling either now or in two years and renting instead?

laurel7172

So they want you to take on, and pay, their mortgage, potentially (hopefully) for decades?

Ouch.

Personally, I'd be investigating equity release schemes. If they can raise enough to clear the mortgage, that's the problem solved. But they are still fairly young, and need around 50% of the house value for two lifetimes...I don't know whether the figures would stack up.

The downside is no inheritance...but no second mortgage either.

Thrugelmir

Suggest that they pay down as much of the mortgage as they can for the next 18 months. Then sell the property, invest the remaining equity and rent.

MarkyMarkD

A quick look at an equity release calculator suggests that if the house was worth £75k, they could get £23k on an interest roll-up basis. That would mean you (or someone) would have to come up with the remaining £11k to clear their existing mortgage.

The rate, though, is almost 7% APR and probably their existing lender will consider extending the term of their current mortgage at a lower rate.

There's nothing wrong in lenders lending to pensioners on the basis of pension income, if it is sufficient to meet the payments.

Annisele

I think you have two problems - a financial one, and a family one.

The financial problem is not yours. Your in-laws were the ones that got themselves in this position, and it's not your responsibility to get them out of it. So if you can't afford to buy their house, don't let them pull a guilt trip on you.

The family problem is another thing. Is there any chance that your in-laws think they're doing you a favour by 'giving' you the equity in their house? Or that they think it's possible to 'take over' a mortgage, and that there will just be a bit of paperwork that any reasonable person would take in their stride? If either of those are true, you might find that a bit of education now goes a long way towards preventing them from getting upset with you.

On the other hand they might understand exactly what they're asking of you, in which case you'll probably need to be a bit more forceful about not taking on their debt.

I think that they've pretty much got three choices: sell and rent (either now or when the mortgage runs out); continue to pay interest only (subject to a lender's agreement); or consider equity release. If they rent, they'll need to consider the costs of renting compared to the costs of a mortgage - I suspect that renting may turn out to be more expensive.

Engeroosi

If you take on the mortgage but the in laws pay you rent for the time they are in the house which covers the mortgage payment, ie it doesn't cost you any extra, then when the in laws pass away you can sell the house and pocket the equity.

Paulgonnabedebtfree

Engeroosi wrote: »

If you take on the mortgage but the in laws pay you rent for the time they are in the house which covers the mortgage payment, ie it doesn't cost you any extra, then when the in laws pass away you can sell the house and pocket the equity.

That would need to be thought through very carefully though as it would not be good to be in a position of needing to evict them for non payment of rent.
Also, the pension provision for when the first one passes on would need to be carefully examined too.
Additionally, there could be an issue if one or both need constant and/or residential care later on.
Depending on the finer details of the situation, these potential pitfalls may not be insurmountable - but they would need to be looked at before making any decision. Of course, the constant bogeyman of interest rates rising needs to be taken into account too.

I know this isn't good but as a last resort, maybe the state would step in if they were unable to pay their mortgage later and were evicted by the lender. Even in these frugal times it's unlikely that two 70+ year olds would be left to fend for themselves on the street.

Another possibility, again depending on the finer points, is there any chance of a self-contained annexe being built onto one of the houses and the other being sold? Of course I realise that this may be totally inappropriate and personalities would come into the equation.

Probably not appropriate but just throwing it out there as something may feel possible.

Wh05apk

If the mortgage could be extended on interest only, even at 5% the interest payments would only be about £140pm, far cheaper than renting, so suggest they look at that option, alternatively, if you did want to (and could) take on yourself, you should be able to do interest only as well, selling the property ultimately to repay the loan.

TheBombshellCall

Thanks everyone for taking the time to post, it's given us some food for thought.

I don't think my in-laws had grasped that when they took on the additional borrowing, it would basically mean they'd become homeless when they couldn't pay at the end of the mortgage term, as incredible as this may seem. Their intention was to spend their retirement in the house they are in now so if something can't be sorted, this is going to be a massive shock to them. Some of the suggestions above have given me some hope and I speak with their bank tomorrow, so fingers crossed for something positive (an extended lending period in their own names based on their income is my preferred option).

bloydie

Hi,

I do feel sorry for you and you partner

It has not been mentioned here and may not be an option i'm unsure as to your current situation and how well you get on with your inlaws. Maybe they could continue to pay off their house over the next two years and either

- Downsize / move further away where it is cheaper
- Sell and give the money to you and your partner and you buy a bigger house or have an extension put on your property

Your inlaws have messed up badly. The offer of you buying the house off them when you do not have the spare money seems to risky. The last thing you want to do is financially cripple yourselves because of somebody elses mistake.

Actually just reading the other posts, doing an interest only the payments do seem quite manageable