Release Equity for Children.

hotnuts21

I am currently going through a breakup with my partner and I want to buy her out of the house and convert the loft to either take in a lodger or sell with more value.

Im looking for about 25k and my mum has offered to lend me the money interest free, if she can release the equity from her house. I have heard nothing but bad things about equity release and so I am not happy on her doing this, so what is the best way for my mum to release equity in her house to loan/give me the money.

My mums situation is she is widowed, owns the house outright, has no major depts or loans. House is worth about 125-135k. She is 59 in full time employment earning about 25k a year.

She is quite happy for me and my brother to use the money tied up in the house now if we can, rather than wait till she has gone (her words not mine).

So whats the best way for someone like my mum to release that equity without moving (she wont move) and without getting ripped off!!

My thoughts are short term mortgage which I pay to her to pay although this would be on top of my own mortgage of course OR equity release of some kind. Maybe selling a portion of the house?

holly_hobby

She is too young for a home reversion scheme (% of equity sold, no monthy repayments, retains lifetime interest to reside until death or entry into long term care)

She is just about ok for lifetime mortgage (generally min age of 55 yrs, equity released depending on age and value of property, no monthly repayments made, with applied interest rolled up, lifetime interest to reside until death or entry into long term care).

(Aviva are a High St name whom are invovled in this, and Just Retirement (access to various providers) ... (neither of whom I am associated with by the way) whom will have specalist advisers, who must for your protection be ER1 (or equivilent) qualified. Also a quick google will draft up a list of willing helpers !

The other alternative, would be to effect a capital and interest repayment mortgage to Mums max mortgageable age - typically 75. So you are looking at a max of 15 yrs to repay the capital raised.

She would obviously need to satisfy the lenders criteria, as would any other indiviudal party to the mortgage.

Speak to a whole of market broker for more specific assistance on whom has max mge age related term and most appropriate products to suit your requirements.

(NB - I have not discussed IHT consequences of the gift, as from the property value I am guessing that Mums net estate (as stands )may well be below IHT thresholds. However please seek advice if this is not the case)

Hope this helps

Holly

hotnuts21

My mums estate is essentially just the house and there are two brothers who would get 50/50 so I dont think IHT would come into it.

Thanks for your other suggestions thoughts, its all very confusing!

holly_hobby

Due to the complexities, and that you will be relaying advice to a 3rd pty (Mum), IMHO you need to speak to a broker in the first place, they will sit down with you and Mum assess your requirements and financial situation, and provide the most appropriate solutions and issues for your consideration.

Hope this helps

Holly

getmore4less

She is quite happy for me and my brother to use the money tied up in the house now if we can, rather than wait till she has gone (her words not mine).

The issue with this is any equity released will then require interest to be paid or accumulate, this is like your mum just paying rent.

Rolling up interest will very quickly eat up remaining equity.

What are her longer term income projections, she will need a plan and debt free with a house paid for is a good way to head towards retirement

Undoing that is not that sensible.

Why can't you raise the money on your property?
what is your place worth, your LTV and income.
how long to save up to build up enough to top up a loan?

How quick could you pay the debt if you kept your place after building the extention.

Also be vary carefull the loft extension could cost more than the value it a
adds.

could just look at selling and getting somewhere more suitable

What does your brother get out of this and when.


First step will be buying out partner, what do those numbers look like?

CLAPTON

what are your financial circumstances ?

why involve your mother in a complicated arrangement?
at 59 does she really neeed the hassle and risk of a mortgage (even if she could get one)

why build a loft conversion ... hardly an urgent requirement?
how much to you actually need to buy out your ex
why not just simply sell and resolve the matter that way

hotnuts21

OK Hopefully this will answer everyones questions.

Our house cost 135k. Its now worth 155k. Im lucky I live in an area not that affected by prices due to it being a student town.
Our joint mortgage is 124k currently interest only (we made overpayments).
To buy her out its going to cost around 15-20k with all other expenses and thats before splitting assets etc.

I am in full time employment and I can afford to continue with our existing mortgage and keep the house going on my own.
Although house prices seem to have gone up slightly, the market is quite stale and so selling is not an option, plus any profit we make from selling wont give us enough to each look at buying a new house seperately. Plus I love my house and want to stay as I can afford to keep it as everything is.

Its a 2 bedroom house, but the second bedroom is very small. The plan is to add a loft conversion for a bedroom/Ensuite. I have spoken to two independent estate agents and they both confirm a good loft conversion will add value to the house. This will make it easier to remortgage in a years time as the LTV ratio will be better than it currently is, also if I am forced to sell the value of the loft should balance out the building costs.
I will rent out one room to a lodger under a rent a room scheme (5k a year tax free) the rental market here is stupid due to the Uni.
Money raised from lodger will be saved to pay off loft conversion costs, as well as bring down the mortgage over the next 5yrs.

I agree with the above and I don't want to get my mum involved, however she really really wants to help and is frustrated she has all this money tied up in her house which I could utilise to pay off my Ex and convert the loft, however I don't want her to be racking up interest on an equity release making the house worthless in 20-30yrs. Hence why I have posted here, there is no way im going to move forward with the conversion etc if it cost my mum a lot of money above what she loans me.

The build wont be that expensive because I will only employ a company to do teh structural work, I have plenty of friends who are plumbers, plasteres, electricians who are willing to help out with a lot of the work.

If I buy her out, then technically I will gain 100% ownership of the property/mortgage/debt! Maybe its worth seeing if anyone would want to 'buy' a share of the house for a % of the ownership, its another thought.

Hope that explains everything and doesnt confuse you too much :-)

holly_hobby

hotnuts21 wrote: »

To buy her out its going to cost around 15-20k with all other expenses and thats before splitting assets etc.

I am in full time employment and I can afford to continue with our existing mortgage and keep the house going on my own.

To have your ex released from the existing mortgage, your mortgage lender will have to be satisfied that your sole income is sufficient to service the mortgage. Have you already have them agree this ?

hotnuts21 wrote: »

I don't want to get my mum involved, however she really really wants to help and is frustrated she has all this money tied up in her house which I could utilise to pay off my Ex and convert the loft, however I don't want her to be racking up interest on an equity release making the house worthless in 20-30yrs.

Hence why I have posted here, there is no way im going to move forward with the conversion etc if it cost my mum a lot of money above what she loans me.

Any equity release/remortgage will obv inc interest and admin charges - so the reality is any capital raising exercise on Mums property, seems inappropriate to your requirements.

hotnuts21 wrote: »

If I buy her out, then technically I will gain 100% ownership of the property/mortgage/debt! Maybe its worth seeing if anyone would want to 'buy' a share of the house for a % of the ownership, its another thought.

Hope that explains everything and doesnt confuse you too much :-)

You are unable to sell a share of a mortgaged property to a 3rd party - if you are talking about selling a share of your Mums propety that would be facilitated by a Home Reversion Scheme ( which she is currently too young for).

How about moving into the small room yourself, letting the larger bedroom, and saving the rental income recd to fund the conversion/reduce mortgage?

Of if you have a sep dining room how about converting that to a makeshift bedroom for the student lodger ?

As stated earlier, your ex may only be removed from the mortgage if the lender is happy that your income is sufficient to maintain the mortgage. So having this confirmned with your lender, would be my first port of call, as it they won't release her then worrying about raising the equity to buy her out, may be left for later in the day.

Hope this helps

Holly

Evilm

hotnuts21 wrote: »

I will rent out one room to a lodger under a rent a room scheme (5k a year tax free) the rental market here is stupid due to the Uni.
Money raised from lodger will be saved to pay off loft conversion costs, as well as bring down the mortgage over the next 5yrs.
:-)

Surely this could mean your mortgage lender would raise your rates to BTL rates? They certainly would need to be notified you were renting part of the house.

As well as checking they are happy to let your partner out of the mortgage and continue with just you alone* you will need to check they are happy with a non-owner occupier as well.

*Be aware that they will be stricter now than when you bought about having a suitable repayment vehicle in place too -even if you would have passed the affordability and repayment checks before you may not now.

getmore4less

You(and mum) have to get rid of the notion there is money tied up in mums house.

It provides a rent free home, if it was sold to release the equity the cash would be needed to pay the rent on somewhere to live.


If the place is too big for her needs then that would be money tied up but you said she does not want to leave the place so thats not an option.

JimmyTheWig

Ok, so the loft conversion should pay for itself by taking in a lodger. But given the difficulties with raising the money to do this, why bother at this stage?

Why not concentrate on buying out your ex for now, then save up for the loft conversion / get a loan when times are easier to do so.
At a push you may be able to do this with a 90% mortgage which, depending on other factors, the bank may give you.
Will certainly depend on your income and credit history.