Re-mortgaging to buy Mum out of an Equity Release Mortgage

scoobyandy

I'm trying to ascertain if there are any downsides to our plan.

The plan:
My mum (aged 73) took out an Equity Release mortgage some years ago to raise cash. I don't know the full amount she "took" but it was around £20k.
Today the settlement figure (it goes up every year) is around £38k.

I am the sole beneficiary on my mums will.

My Mum and I have talked this over and mum regrets taking out this equity release scheme. In hindshight, i wished we'd borrowed cash for her but that's by-the-by. If she lives for another 18 years, the amount owed is around £90k and may well be her whole estate.

We currently have 14k outstanding on our mortgage plus some debt (4k)

Plan: we remortgage on our property to the tune of £56k (approximately) and buy mum's house off her allowing her to buy out of the equity release "noose".
Mum then lives there rent free for as long as she wants/needs.

What haven't we thought about? Are there any financial implications we have failed to think about. Mum is happy to make the agreement legally binding and accepts that she will still be responsible for bills, house maintenance, insurance etc.
Obviously we'll both be using solicitors for the purchase/sale.

Are we correct in thinking that if mum were to go into care in later life (currently has no healthcare issues whatsoever), we could not be forced to sell the house to pay for her care?

All comments / thoughts / facts welcomed and i give my thanks in anticipation.

RAS

You need to think about the implications if "we" break up. If you are married mum's house becomes an asset of the marriage and would be split between the two parties.

And what money does mum have that would allow her to maintain the house? You might not be considered a landlord if you do not accept rent (check this depending on which country you live in), but you may well be legally liable for repairs.

And owning a house other than your main residence could affect your entitlement to benefits if you lost your job.

Kynthia

You probably need some professional advice on this. There is more than one issue to consider such as:

What are the terms of repayment on the equity release as there may be penalties or restrictions.

What are the implications you being an owner of a second property and the legal responsibilities of being a landlord? You'll need a gas safety certificate and to declare any income you make.

Then your mother needs to consider the risks to her of you owning her home What happens if you divorce or pass away before her and will the council deem it to be deprivation of assets and still charge her for nursing care?

Fire_Fox

It's worth running an advanced search, similar issues have come up many times. Also speak to a solicitor: you should consider a charge on her house or having a Deed of Trust drawn up. This is to protect you from losing your investment if your mother needs state care, assuming you do not live in the house they can force a sale. Should also protect yourself and your mother in the event of a divorce, there are implications for both of you for things like state benefits if you have an interest in someone else's home especially if you are named as an owner on the deeds.

scoobyandy

Kynthia wrote: »

You probably need some professional advice on this. There is more than one issue to consider such as:

What are the terms of repayment on the equity release as there may be penalties or restrictions.

The figure given includes the financial penalty and the equity company are happy for the house sale to proceed as long as they get there amount.

Kynthia wrote: »

What are the implications you being an owner of a second property and the legal responsibilities of being a landlord? You'll need a gas safety certificate and to declare any income you make.

I do not know this - i will check with the local authority. Am i technically a landlord if my mum is living there rent free (which she will be)?

Kynthia wrote: »

Then your mother needs to consider the risks to her of you owning her home What happens if you divorce or pass away before her and will the council deem it to be deprivation of assets and still charge her for nursing care?

The agreement of my mum living there rent free will be made with a solicitor so she has complete piece of mind. I'm presuming (naively?) that this agreement can be struck up legally with our respective solicitors?
We haven't really given any thought to what might happen if "we" were to split up or die. That's Food for thought and presumably we can build agreements into this with the solicitors(?)

Some things to mull over there Kynthia - thank you

roger196

Deprivation of assets.
Your mother would only receive about £40k for the freehold reversion of her house subject to a lease for life at nil rent. If you can establish this figure is roughly right, you could argue that there is no deprivation of assets. A solicitor experenced in this area can advise you if this is right or not.
If you split up, the Freehold reversion would form part of the matrimonial assets. The lease for life protects your mother.

Annisele

You need professional advice on this - but have you thought about just lending your mum £38k interest free, secured on her house? So you borrow more money from your mortgage lender, and use that money to make a loan to your mum? (I'm assuming your mum's house is worth quite a bit more than £38k).

scoobyandy

Annisele wrote: »

You need professional advice on this - but have you thought about just lending your mum £38k interest free, secured on her house? So you borrow more money from your mortgage lender, and use that money to make a loan to your mum? (I'm assuming your mum's house is worth quite a bit more than £38k).

I can't take a mortgage out secured on my mums house can i?
Presuming you meant secured against our house, the only problem with that as i can see it would be that we could end getting the bum deal if either my mum ended up in care (and the LA forced a sale of her assets) or she dies after the full length of the equity thing in which case the equity company would have first dibs on her house up to 90k-ish leaving us with potentially nothing for our investment/loan. Or am i missing something?

Her house is worth around 115k

scoobyandy

Professional advise is definitely going to be sought next week.
It's a LOT more complex than i foresaw and there are a lot of areas we'd not thought of.

Thank you to everybody who has contributed thus far.

Annisele

I meant secured on your house. My idea was that you lend your mum £38k, she uses that money to pay off the equity release people (so no £90k cost on her death), and you take a charge over her house.

If the LA forces a sale of her assets, you should hopefully still get your £38k back - as you'd have lent it to your mum, not given it to her.

If there's not going to be an issue with inheritance tax, you could charge your mum a reasonable rate of interest - possibly the rate you'll be paying on your own loan - but have that interest roll up and be added to the debt, repayable only on death.

I don't know whether that's workable though.

Fire_Fox

scoobyandy wrote: »

I can't take a mortgage out secured on my mums house can i?
Presuming you meant secured against our house, the only problem with that as i can see it would be that we could end getting the bum deal if either my mum ended up in care (and the LA forced a sale of her assets) or she dies after the full length of the equity thing in which case the equity company would have first dibs on her house up to 90k-ish leaving us with potentially nothing for our investment/loan. Or am i missing something?

Her house is worth around 115k

You made the mistake at the outset of assuming you would be purchasing a percentage ownership of your mother's home or that your money would not be protected.

The bank lends you money which is secured on your house (mortgage), you in turn lend that money to your mother and her debt is secured on her home as in post 4 (deed of trust, charge at land registry), she pays off the equity release company. That way you are not named on the deeds/ not a landlord/ don't own property you don't live in.

However if you need benefits in the next few years the state can still ask where the money you borrowed went. You will get your money back if the council force a sale for care needs because it is a a traceable and documented loan.