chances of a second mortgage...

shopping_addict

Hi,
I found out yesterday that my parents are considoring releasing equity from their home. From what I understand they could get the max amount of 23k...which would increase to a huge 92k (approx) owed in say 20years time......which sounds horrendous to me...but then as my dad said, the house isnt any good to them when they've died so why not enjoy the money now? -my concern is though that 23k isnt going to last forever and this is just a quick fix..

Another option for them could be to buy a cheaper house although after looking at whats available in the area, they'd probably only end up around 20k better off......but atleast the house wouldnt be essentially 'sold' to a company for 23k....

Anyways, Ive been thinking what would the implications be of them selling the house to me for below market value (like half market value)? I already have a small mortgage which im only 18months into (owe around 66k) -is it likely id be given a second mortgage?..

OR, I dont know if this is ridiculous, and i know its not very well thought through....but, could they sell their house (worth around 105k ish)...then buy another....but with the mortgage in my name and putting around 70k deposit down on a property worth around 100k?... I know im simplifiying things...but im just stressing out about it at the moment...

Anybodys advice is appreciated...

Thanks!

beecher2

I don't think it would be in your parents' best interests to sell the house to you as they'd have no security. Why are you stressing out about it - the implication is that you're worried about an inheritance. Encourage your parents to go to see a IFA to go through their options but in my opinion they're quite right in thinking they should spend their money now.

shopping_addict

Im really not bothered about inheritence, im stressing out about it because they're my parents and I dont like to see them struggling. I just want them to have a more comfortable living than they are at the moment and am worried that if the max equity they can release is 23k, what will they do once that runs out? I dont like to see people getting ripped off. I have told them to see an IFA but theyre reluctant.

beecher2

Print the factsheet on this website for them for starters
http://www.ageuk.org.uk/money-matters/income-and-tax/equity-release/

They really need to take independent advice on this. Do you have anyone else who can encourage them to do so>?

zzzLazyDaisy

There is another alternative - sell the house, release the money and rent.

Private renting can be insecure, but once they reach 55yrs (in some cases) and 60yrs (in others) there are retirement apartments available to rent from social landlords.

Have a look here for information (untick care homes and supported housing unless that is what you want, and you are left with unsupported housing). The site is out of date and you would need to contact the relevant HA direct, and there may also be a waiting list, but it is certainly one way forward.

http://www.housingcare.org/housing/index.aspx

You could also contact your local council/HA's to see what is available.

You do also get retirement properties coming up for rent in the private sector from time to time - try a search on rightmove (click rentals and retirement properties)

It is true that they would have capital and so they'd have to pay their own rent, but they would no longer have the hassle and worry of boiler breakdowns and leaking roofs, and they would be free of money worries.

holly_hobby

shopping_addict wrote: »

Hi,
I found out yesterday that my parents are considoring releasing equity from their home. From what I understand they could get the max amount of 23k...which would increase to a huge 92k (approx) owed in say 20years time......

What kind of equity release scheme are they considering ?

The figs you have quoted I assume are in relation to the roll up of interest on the initial borrowings - payable on 2nd death or going into long term care ?

Helpful to have a few more details on this...

shopping_addict wrote: »

Another option for them could be to buy a cheaper house although after looking at whats available in the area, they'd probably only end up around 20k better off......but atleast the house wouldnt be essentially 'sold' to a company for 23k....

Yes - thats a good option, and ensures the property would remain in their estate on 2nd death.

shopping_addict wrote: »

Anyways, Ive been thinking what would the implications be of them selling the house to me for below market value (like half market value)? I already have a small mortgage which im only 18months into (owe around 66k) -is it likely id be given a second mortgage?..

If your income is sufficient to service both mortgages (and you pass the lenders status checks) no reason at all why you can't do this.

BUT - IF your parents need to go into long term care in the future, and see state support (which is means tested), this sale could be seen as a disposal of assets.

Their estate may be subject to IHT on death, under which the property will be included (as although they have in effect gifed an element of it to you with the discounted pch price - they have remained living in the property - so its a gift with reservation) -
your solicitor will explain more if you go down this road.

Should you pch the property, on its future sale (even if your parents are still with us), you will be subject to capital gains tax on any gain realised during your period of ownership. (which is total sale price - less actual pch price). CGT liability mitigated by annual allowance.

shopping_addict wrote: »

OR, I dont know if this is ridiculous, and i know its not very well thought through....but, could they sell their house (worth around 105k ish)...then buy another....but with the mortgage in my name and putting around 70k deposit down on a property worth around 100k?... I know im simplifiying things...but im just stressing out about it at the moment...

No not a ridiculous thought at all .....

What (I think) you are saying is:-

• Mum & Dad find a property circa 100k
• A mge is applied for in your name, with they in effect gifting you a 70k deposit
• Resulting in a mge for 30k is reqd in your name

Ok .... that's fine this is how I would play this particular plan ...

Mge for 30k with your name as lead name (assuming as stated earlier your income is sufficient to service your own mge & a mge of 30k), and mum & dad as 2nd and 3rd names written as joint mge. Your name being first as the lead income and chosen term thereby based on your age.

By effecting your mge this way, upon sale your cgt liability will be limited to your 1/3 share of the gain, upon sale.

Upon passing of any party, the property automatically goes to the surviving parties. Upon lets say 2nd death of your parents (sorry to raise this !) the property will automatically go to you and there should be no IHT liability, as you are all joint owners, and the property is not actualy being left to you.

As as joint mge though, all parties are jointly and sevrely liable for the mge debt and repayments (i.e mum and dad liabile if you don't pay the mge !!) .... which means that ...

I would strongly suggest life cover on you, as this means if you pass first then the os mge will be repaid, as otherwise your parents would need to keep on paying the mge payments if not, and may fall foul of the lenders max age criteria. So life cover for the 30k as a DTA if on a repayment basis or LTA if on interest only with a repayment vehicle, on you, would be an absolute priority to protect them and their interests.


I think I've covered your points ... and if f I think of anything else I will pop back ..

Hope this helps

Holly

shopping_addict

Thanks for your help Lazy Daisy, I don't think they'd considored renting but that might be a good option as they'd have cash in the bank and no repair worries etc... good thinking!

And Holly thanks for your advice I really appreciate people taking the time out to read this and help me out. I dont know what we'll end up doing -I'll try and speak to them tonight... I just dont want them to pin all their hopes on me being accepted for the 2nd mortgage as although I probably could afford it, I struggled being accepted for a mortgage on my home only 18months ago...and nothing has really changed since then..

Fingers crossed for the Euromillions on Friday! )

shopping_addict

Ive printed that fact sheet out for them Beecher. Theres nobody else who would encourage them to be honest as theyre quite proud and dont really want people to know theyre struggling. I will try my best though to get them to speak to somebody, thanks again