Remortgage for Parents, what's the best route?

Alan_M_2

I may have been misleading about inheritance, whilst I'm not in the slightest bit bothered about getting anything at all, I'd prefer my folks to have a nice time, I have a sister who views things slightly different, I think that's where the unwillinginess for equity release is coming from.

EdInvestor

An equity release loan (aka lifetime mortgage) is one where the interest rolls up over the lifetime of the parents, and the loan is repayable when the house is sold after the last one dies (or goes into care).It comes with a guarantee that they can stay in their home (or move) and that there will be no negative equity.

Normally up to 50% of the value of the home can be taken out.The cash can be given out as a lump sum or on a "drawdown basis" eg, in this case they could earmark a total loan of say 70k, but at the moment "take out" only 26k which would pay off (actually defer) the mortgage and give them more money to enjoy their lifestyle now.

Then later if they needed more ,either as income or to do home improvements/ buy a new car/whatever, they could access more money. Taking the loan on a drawdwon basis is better from the heirs' point of view, as it reduces the interest rollup eating into the equity.The parents continue to own 100% of the home, so benefit from any price appreciation. "Remortgaging" is also a possibity with equity release to take advantage of better deals as the market develops.

Equity release is likely to feature more and more in planning for IHT and possible long term care costs ( the latter would certainly be applicable in this case).

While it is more cost effective to trade down to a cheaper home and then invest the cash released, there seem to be quite a lot of people in the situation like your parents with homes around the 150k mark, where trading down is not really an option because the resulting home would be unsuitable and much of the money released would be eaten up by selling costs and taxes.

So for these people equity release will often do the trick and particularly if there is any likelihood of going into care, where the money will be lost for sure eventually and the heirs will not benefit either way.


This thread has a useful discussion of the issues

sjbyrneuk

I am in exactly the same situation. My parents have paid off their mortgage and are living off their pension. They have invested in this house all of their working lives and it would be nice for them to reap the benefit. Neither myself or my sister are interested in inheritance but I really don't want to take out an Equity Release scheme as that is throwing money away.

They are not happy with leaving us nothing, what would be the benefits and drawbacks of me buying their house from them in a private sale? E.g. if the house was worth £200,000 and I bought it for say £100,000 via a mortgage. The house would be mine and my sisters, they would be living in it as usual but with some cash to make their life a little more comfortable. When the eventual happens, then the house is mine and my sisters to sell, pay off mortgage with some left over.

Are there any tax implications (or other issues) that might catch us here? Am I being naive? Is there another way I can do this that anyone can suggest? One risk is that if I am out of work, their house is at risk. What are the other risks?

Thanks a lot.

Steve

Alan_M_2

I think that's pretty much the route we're taking, although we're not "buying" the house per se, myself and my sister will get our names put on the deeds and we'll take a mortgage on the property in our names.

Giving this to Mum & Dad to make life easy for them, and eventually we are left owning the house equally to do with what we wish.

I'm just not at all comfortable with equity release, I feel my parents investment is lining someone elses pocket when we could help out instead.

But hey, it might be me being naive too:)

EdInvestor

The house would be mine and my sisters, they would be living in it as usual but with some cash to make their life a little more comfortable.

Strange though it may seem, much as they love their children, many parents like to keep control over their own home There are horror stories about children marrying people, who on divorce force the sale of the parents home (which is now part of the marital assets), and the parents get evicted.There could also be problems with bankruptcy (or loss of job) with the children if the house was their asset.

Alan_M_2

In my case, I've been supporting my parents for the last 10 years, this is a way to basically make that a lot cheaper for me.

I'm sure some unscrupulous children can be pretty unpleasant when it comes to money, I'm also very sure they would be in the minority.

Alan_M_2

Update on this thread......

I advised my father to go to the Halifax himself and get one of their advisers to run through his options.

Bear in mind my father is 70 years old, based on his and my mothers pensions alone, they will lend him £68K over 42 years which halves his current payments and generates £42K in cash from my parents to make life more comfortable.

No requirements for either myself or my sister to be on the deeds of the property, and no requirement for a guarantee from either of us, although if I do guarantee they can borrow more (I see no point in that personally).

Once I've had a good look through the paperwork I report back in greater details, but I see this as a much better option than any form of Equity release.

Alan_M_2

Resurrecting this thread....

Halifax were a monumental waste of time, went throught the whole malarky, credit checks fine, nothing an issue, organised the valuation - then something somewhere upset them and they changed their mind overnight and withdrew all offers without explanation. Their advisor even refused to answer phone calls and the local branch where my parents met Her refused to discuss it - most bizarre. And all that over £60K on a house that turned out to be worth £170K.

Anyhow - I approached a financial advisor who went via Abbey, who have made a firm offer and would happily loan up to 90% of value with a mortgage to run until my parents reach 85 years old. We did chose much less than this amount.

No need for me to be on the deeds, they continue to own their house - I'm covering the payments for them if they need it, in the mean time they now have a little money with which to enjoy their retirement and not have to worry where the money for the council tax bill is. Ideal solution and if the worst happens I can just take it all over.

The main thing is, we're in control of the property and the finance, any form of equity release or life mortgage seems to end up with you giving away at least half your property to a mortgage firm....I guess that's fine if you have no family - but I'm just not going to swallow that.