Is my Mum getting robbed? Please help

bestyman

My mum who is 67 years old recently sold her house, she is staying in rented accomodation at present and now thinks she has found somewhere suitable that she is going to buy . I know very little about mortgages but my mum knows even less . At her age she is , shall we say not as wise as she once was . I phoned her tonight for a chat and asked how here house hunting was going on. She explained that she had found a nice house for 127k and a very nice man at the estate agent had sorted a mortgage out for her . Facts and figures posted below.

property price £127,500
deposit £75,000
amount borrowed £52,500

montly payments £243 for first 2 years
after that £309.31 ( 15 year mortgage)

This is a INTEREST ONLY mortgage , so she is led to believe that she must make arrangements to pay off the £52,500 in 15 years ( obviously 82 years old by then ) she has no idea how to do this.

The overall cost is 7.1% apr.

Her income is £1,672 a month plus `pension`

Credit history is 48 months ago a satisfied CCJ for £96 and within the last 6 years defaults of £538 ( she says not her fault)

Arrangement fees of £500 , telegraphic transfers of £45, redemption of £125 and valuation of £255.

Well, thats what she knows about and I wouldn`t be at all suprised if there were things she has overlooked . When I asked if this included life assurance ( or is that insurance) she didnt know . I phoned my mum in just in time and told her to sign nothing untill I had looked into it . If it wasn`t for this site I would ask at the mainstream lenders if they could better the deal but to be honest its a case of the blind leading the blind.

To complicate matters further she is expecting a compensation payment of around 60k this year . Her attitude is to enjoy life and spend it on holidays etc ( at 67 I don`t blame her ) and she simply looks at the repayments as she says ` cheaper than renting` and she is ok with this but I feel, sorry know, that better deals are out there .

The bottom line is this , are they taking the p***?


Thanks for any replies..

Paul

hairy_cornflake_2

Thats a difficult question to answer - it will depend on what answers she gave the adviser.

The big thing about mortgages today is affordability. The regulators (FSA) make it clear that mortgages should not be recommended unless its affordable. You dont state what your mothers outgoings are so its difficult to answer this question also .... sorry i am not being much help at the moment!

I appreciate your mother wanting to live life to the full - but as you said how is she going to pay the mortgage off at 82 yrs old??

What your mother could do is start the mortgage on an interest only mortgage now - and when she receives the 60k compensation - pay off say £30,000 of the loan and switch the remaining 22,500 to repayment over the remaining term. You can get figures on the monthly cost on this to make sure its affordable.

To do this of course ensure the lender wont apply any penalties for doing so.

You state you mothers income - can I assume that this income is all derived from investment and pension income and not employed income that is likely to stop in the short term? - if not let me know as this puts a whole different gloss on the situation.

simonjfisher

The first thing to consider is your Mum's age. That restricts the lenders available to her, as do the CCJ and defaults.

The interest only aspect would be a concern ordinarily but considering the compensation on the way is not something I would worry too much about.

Overall the deal doesn't sound too far away from what I'd expect considering the circumstances but I'd suggest that you check the estate agents broker is independent and not working from a panel.

Best thing to do is to get an independent mortgage broker to compare the deal.

herbiesjp

How much is the monthly rent?

bestyman

Thanks for the helpfull replies.
Her income is from renting out the spare bedroom to lodgers, this is declared income to the Inland revenue and the lodgers will move with her to her new house. No one can say for sure how long she will continue to have lodgers. The mortgage company are aware of the lodgers and apparently they may have to sign something to they will leave in the case of mortgage not paid. She gets pension and disability of £500 every 4 weeks also.

If she were to change mortgage within the first few years there is a fee of about 3k.

Her outgoings are just household bills and council tax. No othere debts or credit.

Would she be better off with a repayment mortgage?

Whay are they offering here a 15 year term at her age?

Is 7.1% reasonable?

Is the £500 arrangement fee standard practice? No doubt the broker will get commision from the mortgage company anyhow ( bread buttered on both sides?)

The estate agent ( also mortgage broker) is putting pressure on her saying that ,well basicly, "hurry up and sign on the dotted cos someone else is interested" so time is running out ( or at least thats what we are led to believe)

Thanks again

Paul

bestyman

p.s her rent at the moment is £500 per month. This was only a temp measure as when she sold her last house she couldn`t find anywhere suitable so just rented for 6 months.

zzzLazyDaisy

Has she considered contacting her local council/housing association? Many have retirement flats for people over 60. The rents are low, and that would give her security, and also leave her with capital to invest so that she can enjoy her money rather than tying it up in bricks and mortar. Just a thought.

simonjfisher

The arrangement fee is likely to be payable to the lender and not the broker.

You stated that 7.1% is the APR which is not the actual rate she will be paying which could be a lot lower.

As I said in my earlier post the CCJ, defaults and your mother's age are the reason the rate is higher than she would be able to get otherwise.

Why not speak to the broker yourself and ask him all the questions you have, then let us know their answers?

bestyman

Hi again.
I didn`t speak to the mortgage broker personally but discussed it with my mum and she phoned them up ( I thought it was better that way ) The bottom line was its the best deal we can do, take it or leave it . They are also working on figures for a repayment mortgage.
Obviously they will reccomend what is best for them and not best for mum, thats why I need help here or at least some info I can use when we contact them .

In a nutshell this is now what my mum wants to do .

Take the deal on interest only. She wants the monthly payments to be as low as possible. When she is 82 or before sell the house, she thinks it will be worth £1000s more in 15 years and she is hopeing to pay the 50k back out of the house profits and buy a smaller house with the change.

Can anyone see a problrm with this ( I think I can)

Thanks again

Paul

rchddap1

Firstly what if she doesn't last until age 82 (sorry to be so blunt, but it has to be mentioned). My grandfather is 90 now and lives in rented accommodation to be closer to family after my nan died.

Secondly what happens if she doesn't make as much out of the house as she expects?

Thirdly, how will she account for any interest rate rises? She may only pay x pounds now, but that may rise by y pounds as interest rates fluctuate. How much of an interest rate rise can she absorb? Could she cope with paying an extra 1%, 5%, 10% etc... A lot can happen in 15 years. I can change jobs, get another job, work harder etc... However, I could never expect my grandfather to go out and work, or my nan when she was alive.

There are lots of problems and issues to think about and some of them might not be very nice to think or talk about.

bestyman

Hi,
Thanks for reply.
If she doesn`t make 82 ( lol, her attitude is not my problem) would the house be sold for say 127k, the building soc take 50k and 77 left as estate?

Shes confident that a house worth 127k now will be worth at least 177k in 15 years, I mean following past trends it would be worth a million in 15 years! She says that if not in 15 years her 3 sons will have to chip in 17 k each , she says that wont be much money in 15 years and "we`ll get it back anyhow"

Regarding the interest rates , to rent here for the same house is £500-650 a month, her payments buying are £309 so she says there is no way she can be worse off.

The funny thing is that I look into every deal as much as I can , my mum simply thinks £309 a month sounds ok to her, where do I sign?. Her simplistic outlook on life seems to be working but I keep asking, where is the catch?

Paul