Helping out parents with mortgage

Dubai2011

Hi all,

Please can any of the amazingly helpful people on here give some advice on my situation?

Parents are separated and have a joint mortgage which is ending in May 2012. It is an interest only mortgage with Natwest and they had other finances in place to pay off the balance thereby clearing the debt. The current mortgage is 149,000 and house is worth approximately 235,000.

Now, my Dad has dropped a bombshell to my Mum basically saying he has spent much of the money to pay the mortgage off and he will perhaps Be able to find 10,000-15,000. This still leaves an outstanding of at least 134,000. My Mum doesn't work and wouldn't be able to get a mortgage I dint think given her age (62) and lack of income. My Dad has relinquished any of the equity in the house to my Mum so in essence if it was sold she may be lucky to get 90,000-100,000. This doesn't in my opinion help her as she won't be able to buy anywhere decent for that and renting would probably use it up in 15 years.

We have discussed whether I can help them as I don't want to see my Mum lose her house and garden and it may benefit me in the long run also. I am wondering if I can take out a mortgage for 149,000, pay off their mortgage and I understand the house will have to be in my name. My Mum would keep her equity in the house but I am unsure legally how we do this? I have also read that if she has to have care in the future they may look into the selling of the house or am I wrong? I wouldn't live in the house but let my Mum live there for the rest of her life and I would obviously pay the mortgage and own a percentage of it.

I also was thinking if the 10,000-15,000 that my Dad could find I could use with my savings over the next year to give me a deposit on an investment property or residential dwelling when I return to the UK as I currently live in Dubai.

Sorry it is such a long post and complicated! I want to help out my Mum so she doesn't lose the house but I know there are many potential pitfalls and complications. To summarise, I think I would like to know; can I take a mortgage for say 149,000 using the 85,000 equity in the house as deposit which would be an offshore mortgage, if so what costs would be involved at a guess for changing this over? Also, if people have an opinion on if this is the best solution.

Any suggestions or advice greatly received

Thanks

Dave_the_Ginger_Cat

I'd really recommend you seek advice from a broker who specialises in this type of lending. Google's first answer was Barclays Wealth http://www.offshore.barclays.com/non-resident-mortgage/ and there are more of this type available

What you're asking is a complex set of questions, and there are number of facts which you'd need to disclose - income, status, other lending and so on which may be better under a formal relationship.

Good luck

holly_hobby

Hi

I will give you as much help as I can .. as will others...

Simplistically you want to purchase the property from your mother, and give her leave to reside there for her lifetime. (as you can't leave her on the deeds, if you are to be the only party to the mge)

The difference in (estimated) valuation to the purchase price you wish to use as a "deposit". Some lenders will ignore this and use the actual purchase as the starting point - with a deposit reqd as normal. So you are looking for a lender who accepts "gifted deposits".

Secondly, this is further complicated by the fact that in effect you want a buy to let mortgage - as you don't intend to reside in the property at all.

Upon disposal of the property you will also incur CGT at the full amount (if the property was never your main residence before the point of sale).

Can't see there being an income tax issue on the "rental" of the BTL - as you mother is living there rent free - with you not receiving any monatary rental payment, and paying the mge out of your own funds. (get that double checked with an accountant)

Other routes if you at the tme of application intend to reside with your mother at complation (notwithstanding the fact that this may change post completion) .. are ...

As stated earlier - you won't be able to have the mortgage in your sole name, but the names on the deeds be your own and your mothers. Deeds are the legal ownership of the property - and the lender would not allow any name on the deeds that isn't legally liable for the mortgage.

If you want to apply for the mge in your own name, there would be a transfer of equity, with mother taken off the deeds. You could then have a solicitor effect a codicil to the deeds stating that your mother has the right to lifetime residence, as long as you are the owner. The mge application (if you don't include your mother on it - will ask if there will be anyother residents who are over 18 and not party to the mge - if there are they need to sign an agreement to vacate the property upon sale - to avoid squatters rights).

You could apply for the mge in joint names (you may get away with a remortgage as one applicant is already the owner - which would also solve the deposit issue), with you as first applicant and main earner, and mother as 2nd applicant (non earning), she wouldn't be underwritten for affordability as its not reqd - and thereby she automatically gets rights to the property, will be on the deeds etc.

This again involves a transfer of equity in putting your name to the deeds. And would mean that upon the death of either party, the property will automatically revert to the surviving individual.

Again, the above is workable IF your stated intention is to reside at the proprety as your main residence at the time of complation.

You further need IHT/estate planning on the whole thing (as there may be a liability the amount of which will be dependant on the process taken) and also some long term care advice, regarding how the disposal/part disposal of an your mothers home with effect her suitability to future long term care needs (provision of a LTC policy may be prudent). Your current residence and tax status in Dubai may also be an added hic-up. (working for a UK company helps)

You have mentioned "off shore" mortgages - did you mean "off set" - if not and off shore is correct - then you need to seek a specialist broker & explain to them you needs, and why you feel such a mge to be beneficial to you (which may be one complication too far on top of everything else). Barclays and Lloyds Banking Group (which now incorps Bank of Scot & Halifax group) are currently in the market - but offshore is not my speciality so I can't really give more guidance other than that.

Hope this helps .... its a complex query, and I am sure I've probably missed answering part of your post, but this will get you started .. and I'm sure that other eagle eyes will spot anything I've missed, or added further info to those areas I've briefly covered !

Holly

getmore4less

Since this will be your only UK property you probably could make this your UK main residence but that would need to be considered along with your current tax status re domicile and residency.

Since you plan to help out and not that bothered about the cost another angle might be to buy the place and rent back at full market rates, this would legaly eat up the cash and avoid future care costs.

presumably along with trying to keep her in the house you would also want to make sure she was in a comfortable home should that arise, state funding does not always provide that so you need to ballance the risk that if you reduce your mums cash and then later can't afford to fund her care she might not end up in a nice place(if there are any left).

Two key point
Do you want to keep this house for yourself
Is this a suitable place long term for mum(eg no stairs)

if not then selling and funding something suitable long term might be a better option.

Dubai2011

Hi Holly,

Thanks for reply. As I can see, there are a few sticking points;
1 - my mum wants to keep her equity in the house and quite rightly so but how do we get around this as I could get an offshore mortgage as non resident but she isn't? As a non resident, can I be put on a remortgage with her thereby leaving us both on deeds?
2 - I have lived in the house for around 22 years but obviously not on the deeds. Would this reduce any CGT?
3 - could I take my mum off the deeds, get a mortgage solely, then put her back on ?

Thanks in advance




QUOTE=holly hobby;44636908]Hi

I will give you as much help as I can .. as will others...

Simplistically you want to purchase the property from your mother, and give her leave to reside there for her lifetime. (as you can't leave her on the deeds, if you are to be the only party to the mge)

The difference in (estimated) valuation to the purchase price you wish to use as a "deposit". Some lenders will ignore this and use the actual purchase as the starting point - with a deposit reqd as normal. So you are looking for a lender who accepts "gifted deposits".

Secondly, this is further complicated by the fact that in effect you want a buy to let mortgage - as you don't intend to reside in the property at all.

Upon disposal of the property you will also incur CGT at the full amount (if the property was never your main residence before the point of sale).

Can't see there being an income tax issue on the "rental" of the BTL - as you mother is living there rent free - with you not receiving any monatary rental payment, and paying the mge out of your own funds. (get that double checked with an accountant)

Other routes if you at the tme of application intend to reside with your mother at complation (notwithstanding the fact that this may change post completion) .. are ...

As stated earlier - you won't be able to have the mortgage in your sole name, but the names on the deeds be your own and your mothers. Deeds are the legal ownership of the property - and the lender would not allow any name on the deeds that isn't legally liable for the mortgage.

If you want to apply for the mge in your own name, there would be a transfer of equity, with mother taken off the deeds. You could then have a solicitor effect a codicil to the deeds stating that your mother has the right to lifetime residence, as long as you are the owner. The mge application (if you don't include your mother on it - will ask if there will be anyother residents who are over 18 and not party to the mge - if there are they need to sign an agreement to vacate the property upon sale - to avoid squatters rights).

You could apply for the mge in joint names (you may get away with a remortgage as one applicant is already the owner - which would also solve the deposit issue), with you as first applicant and main earner, and mother as 2nd applicant (non earning), she wouldn't be underwritten for affordability as its not reqd - and thereby she automatically gets rights to the property, will be on the deeds etc.

This again involves a transfer of equity in putting your name to the deeds. And would mean that upon the death of either party, the property will automatically revert to the surviving individual.

Again, the above is workable IF your stated intention is to reside at the proprety as your main residence at the time of complation.

You further need IHT/estate planning on the whole thing (as there may be a liability the amount of which will be dependant on the process taken) and also some long term care advice, regarding how the disposal/part disposal of an your mothers home with effect her suitability to future long term care needs (provision of a LTC policy may be prudent). Your current residence and tax status in Dubai may also be an added hic-up. (working for a UK company helps)

You have mentioned "off shore" mortgages - did you mean "off set" - if not and off shore is correct - then you need to seek a specialist broker & explain to them you needs, and why you feel such a mge to be beneficial to you (which may be one complication too far on top of everything else). Barclays and Lloyds Banking Group (which now incorps Bank of Scot & Halifax group) are currently in the market - but offshore is not my speciality so I can't really give more guidance other than that.

Hope this helps .... its a complex query, and I am sure I've probably missed answering part of your post, but this will get you started .. and I'm sure that other eagle eyes will spot anything I've missed, or added further info to those areas I've briefly covered !

Holly[/QUOTE]

holly_hobby

Dubai2011 wrote: »

Hi Holly,

Thanks for reply. As I can see, there are a few sticking points;

1 - my mum wants to keep her equity in the house and quite rightly so but how do we get around this as I could get an offshore mortgage as non resident but she isn't? As a non resident, can I be put on a remortgage with her thereby leaving us both on deeds?

Its not my specialist area - but I strongly suspect as a UK resident & domiciled, your mum will be unable to be party to a off shore mortgage (due to tax advantages) .

You could look at arranging the mge this way, and writing a trust deed for the equity your mum wants to retain a legal claim to.

Looking at it the other way, as a poss remortgage - you need a broker to source an ex-pat mortgage lender. From my prev experience in relation to individuals being out of the UK for employment reasons (& not receiving uk taxed income into a UK bank) - they normally like the company to be UK based. But my knowledge is little dated in this area, but given as a general feel.

You are aware that there are IHT issues with this as a discounted related sale - so you need professional advice to ensure you understand the implications of actions taken. (not forgetting the situation regarding how disposal will effect any future requirement for state funded Long Term Care provision or assistance).

2 - I have lived in the house for around 22 years but obviously not on the deeds. Would this reduce any CGT?

CGT is classed on any gain whilst the asset has been held. So the CGT bill will be calculated from the date & purchase price (market value in this case) to date and value of sale at disposal (net of allowable deductions). As (if) you won't have lived in the property during your ownership, it is my opinion that the CGT reductions for pre-occupier sales would not apply (sure I will be corrected if thats incorrect). If you want more info on how this works HMRC website is informative and explains in layman terms.

3 - could I take my mum off the deeds, get a mortgage solely, then put her back on ?

Well this would need the permission of the lender - if you effect an offshore mge - then as your mum is a uk resident and uk domiciled than I doubt it would be permissible.

If however, you later changed the mge from offshore to a standard lender (say on your rtn to the UK), then shouldn't be a problem if your income is sufficient to service the loan, you can add her as 2nd name on the mge app as discussed earlier.

This is a very complex area regarding tax liabilites and other areas mentioned - now having the basics I would really seek the services of a whole of market broker or contact the specialist providers I mentioned in my earlier post (start with Barclays).

Hope this helps

Holly

Dubai2011

Thanks Holly, it is giving me a massive headache thinking about it haha.

I appreciate all your advice. I will contact my offshore bank and various others for advice.

Thanks

holly_hobby wrote: »

Dubai2011 wrote: »

Hi Holly,

Thanks for reply. As I can see, there are a few sticking points;

1 - my mum wants to keep her equity in the house and quite rightly so but how do we get around this as I could get an offshore mortgage as non resident but she isn't? As a non resident, can I be put on a remortgage with her thereby leaving us both on deeds?

Its not my specialist area - but I strongly suspect as a UK resident & domiciled, your mum will be unable to be party to a off shore mortgage (due to tax advantages) .

You could look at arranging the mge this way, and writing a trust deed for the equity your mum wants to retain a legal claim to.

Looking at it the other way, as a poss remortgage - you need a broker to source an ex-pat mortgage lender. From my prev experience in relation to individuals being out of the UK for employment reasons (& not receiving uk taxed income into a UK bank) - they normally like the company to be UK based. But my knowledge is little dated in this area, but given as a general feel.

You are aware that there are IHT issues with this as a discounted related sale - so you need professional advice to ensure you understand the implications of actions taken. (not forgetting the situation regarding how disposal will effect any future requirement for state funded Long Term Care provision or assistance).

2 - I have lived in the house for around 22 years but obviously not on the deeds. Would this reduce any CGT?

CGT is classed on any gain whilst the asset has been held. So the CGT bill will be calculated from the date & purchase price (market value in this case) to date and value of sale at disposal (net of allowable deductions). As (if) you won't have lived in the property during your ownership, it is my opinion that the CGT reductions for pre-occupier sales would not apply (sure I will be corrected if thats incorrect). If you want more info on how this works HMRC website is informative and explains in layman terms.

3 - could I take my mum off the deeds, get a mortgage solely, then put her back on ?

Well this would need the permission of the lender - if you effect an offshore mge - then as your mum is a uk resident and uk domiciled than I doubt it would be permissible.

If however, you later changed the mge from offshore to a standard lender (say on your rtn to the UK), then shouldn't be a problem if your income is sufficient to service the loan, you can add her as 2nd name on the mge app as discussed earlier.

This is a very complex area regarding tax liabilites and other areas mentioned - now having the basics I would really seek the services of a whole of market broker or contact the specialist providers I mentioned in my earlier post (start with Barclays).

Hope this helps

Holly

holly_hobby

Thats the very best idea and good luck to you & mum

Holly

Dubai2011

Hi Guys,

I posted a few weeks back, see above. I have moved things forward a little and was hoping for some more advice (Holly??? )

Applied with Lloyds Tsb for Offshore mortgage - lifetime tracker at 3.49+BR. I applied for 165,000 with a 75,000 deposit on a house worth 240,000. Using the equity in the house as deposit. The idea being i would buy house for my mum to live in etc.

Anyway, i had an email from Lloyds saying that based on my income and outgoings and their criteria they won't give me a mortgage for that amount? I phoned them and asked why as it didn't make sense and they explained the following;

Income:
Salary - 25,000 aed (appr 4200 GBP) net a month
Accomodation - 7500 aed (1250 GBP) net a month
Total - 5450 GBP net

Outgoings:
Rent - 1250 aed (205 GBP) a month
Living i.e. food/petrol etc - 4000 aed (666 GBP) a month

Savings:
14,000 GBP
Investments:
4500 USD
Pension:
2000 USD

So based on above, my income is around 5450 and outgoings is 871, leaving me with 4579 GBP. My outgoings are about 15% of income.

The mortgage would be at 3.99% over 30 years on 165,000, 790 GBP. This i can quite easily afford given the above. Even with this added to outgoings it is still only (871+790=1661 GBP) 30% of my total income.

So when they told me that the mortgage had to be added with outgoings and equal less than 50% of my income i thought no problems. Then they told me that they had worked it based on the 3.49% + BR with the BR going up to 5% i.e. 8.49% which would be around 1300 GBP a month, therefore taking me over the 50% of income. I understand that rates will go up but is this reasonable? If they went up that high then i have savings or as i told them then i would have to sell and with 36% equity i didnt think it was that risky?

Anyway, i was a bit surprised but i suppose that is how it is. I was hoping that people maybe able to help with an alternative? My ideas are; either try and get Mum and Dad a remortgage with me as a guarantor for 2 years until i am back in UK or with me paying into their account so they have a higher income? Or try to get a fixed rate offshore mortgage in the hope that they dont look at the affordability +5%. I looked at International Mortgage Plans and they had Ipswich Building Society who do a fixed rate, also Barclays and Natwest. I am just wondering if you think i may fair any better with a fixed rate?

Thanks in advance

John

Dubai2011

Hi all, I am seeking some more excellent advice - Holly??? I posted as above regarding parents mortgage etc. I have, after 4 months of stress, hopefully found a solution. I have scraped together 70k deposit to allow an offshore mortgage with Lloyds Tsb Singapore. Only sticking point is the legal document between myself and Mum.

If we draw one up now she has a vested interest in the property which Lloyds have to made aware of and as such the mortgage wouldn't be excepted. What I am hoping to ask, as suggested by the broker here in Dubai, does anyone know of a legally binding document that can give my Mum protection over the equity she will have in the property. She won't be on the deeds but just an agreement between us.

My Mum is speaking wih a solicitor tomorrow but I am hoping someone may have an alternative? Holly, did you mention a codicil to the deeds? Would this work?

Thanks in advance

Dubai2011

Anyone??:D

Dubai2011 wrote: »

Hi all, I am seeking some more excellent advice - Holly??? I posted as above regarding parents mortgage etc. I have, after 4 months of stress, hopefully found a solution. I have scraped together 70k deposit to allow an offshore mortgage with Lloyds Tsb Singapore. Only sticking point is the legal document between myself and Mum.

If we draw one up now she has a vested interest in the property which Lloyds have to made aware of and as such the mortgage wouldn't be excepted. What I am hoping to ask, as suggested by the broker here in Dubai, does anyone know of a legally binding document that can give my Mum protection over the equity she will have in the property. She won't be on the deeds but just an agreement between us.

My Mum is speaking wih a solicitor tomorrow but I am hoping someone may have an alternative? Holly, did you mention a codicil to the deeds? Would this work?

Thanks in advance