Adult kids buying into equity of our house?

CLAPTON

Sadie_Su wrote: »

I've deliberately kept it to a percentage based discussion on the thread, Clapton, but am happy to message you the actual figures if that would help?

No-one know who you are here,

but clearly a debt of 30k requires a different solution to £300,000
the incomes of the participants is clearly relevant

but your choice of course.

Sadie_Su

CLAPTON wrote: »

but clearly a debt of 30k requires a different solution to £300,000
the incomes of the participants is clearly relevant

OK, in round figures, House A has a value of £200k, a repayment mortgage of £70k, and a rental income of £900 per month. House B has a value of £500k and an interest only mortgage of £200k. Parents have income of £40k and £20k, children have income of £50k and £25k.

Simon_gloster

Why do you need finance when there is around £140k of income kicking around.

Affordability should be ok on the 2 highest earners, but term restrictions due to age could be a headache just as much of the legal and tax complications on this thread.

Thrugelmir

Sadie_Su wrote: »

House A has a value of £200k, a repayment mortgage of £70k, and a rental income of £900 per month.

Is the rental income declared for tax purposes?

Is the letting profitable?

Sadie_Su

Thrugelmir wrote: »

Is the rental income declared for tax purposes?

Is the letting profitable?

Yes and yes. .

holly_hobby

Sadie_Su wrote: »

OK, in round figures, House A has a value of £200k, a repayment mortgage of £70k, and a rental income of £900 per month.

If the object is to reduce the commitment on the resi mge -due to ages, and change the residue to repayment - why not release equity on house A which is let, and use this to partially redeem your current IO borrowings ?

Working on a figure of 6% interest and rental income being 125% of the interest repayment element - you are looking at max borrowings of 144k - so that would be capital raising of 74k (i.e - 144k x 6% x 125% /12 = £900 pm)

The interest elment of the equity release is also a permitted deduction against rental income, as the equity release exercise is classed as capital withdrawal for HMRC purposes. (this is the case if the total new mge is equal to 100% of the pch price, or value when it entered let. If the overall new mge exceeds this figure (due to an increased market valuation), then anything over the pivotal sum mentioned is not a permitted deduction).

Your incomes are fine (as we have 1 earning in excessof 25K), max ages aren't so important on a semi-comm mge, and you won't have to tsf any equity into the name of your children.

Sadie_Su wrote: »

House B has a value of £500k and an interest only mortgage of £200k. Parents have income of £40k and £20k, children have income of £50k and £25k.

If you release the max avail from Property A, then this would give you a max of 74to redeem off Prop B mge (give or take after any legal and admin fees of course)

Leaving you a minimum of 126k os on your resi mge - which may be much more affordable over a 7 yr C&I term.

Now we know some figs, and have a bit of meat on the bones, does the above help and provide another alternative ?

Holly

Sadie_Su

Trying to get my head round that one, Holly......

So, we raise £75k by re-mortgaging House A on an interest only mortgage (?) that aims to be self financing from the rental income. We use that £75k to reduce the mortgage on House B to £125k, and convert that to a repayment mortgage. Online calculator puts those repayments in the region of £1400 a month, based on 6% over 10 years. That's about £600 a month more than we're currently paying, plus we lose the net contribution of about £200 a month that we currently get from the rented house. So we have to find an additional £800 a month of taxed income..... :eek: and we end up with a hefty ongoing interest only mortgage on House A.

holly_hobby

Your losing the £200 pm residual rent, if the BTl rate is 6% or more (6% used in my calc is a rate that the mge lenders use to calc self financing of the unit) - having said that you will have reduced your resi borrowing and interest only commitment, which has to be redeemd in 7 yrs you say, to 126k instead of the current 200k, and you have the tax relief on the BTL mge to boot. If of course you had addressed this issue some yrs ago, you would have more than 7 yrs to play with (or of course you could seek a remortgage upto age 75 yrs, if your retirement income is appropriate and sufficient).

Also, is the current mge on property A not a Buy To Let mge ?

If remortgaging and releasing equity from the let property doesn't suit your requirements - you're back to using the children to digging you out of the redemption issue you have on your primary residence ... and the several noted issues surrounding this proposal have been discussed at length.

Or of course, to keep the children out of the mix given the issues, you sell either property to redeem the os resi mge when your 7 yrs are up, seeing as you don't have any other repayment plan or vehicle in place.

Hope this helps

Holly

Sadie_Su

I pulled the 6% interest rate from your calculations, on the basis that it was a useful rule of thumb.....might get a better rate than that initially, but it's likely to trend upwards over the next decade, along with the underlying value of the houses.

Using the children to dig us out? :rotfl: this whole exercise is FOR the children, to give them a chance of inheriting a chunky set of assets when we fall off our perch. Easiest option for us would be to move back to House A, sell House B, pocket £300k and live comfortably for the next 25 years until we sell house A to pay for our nursing home care. Best option is for us to work as a team to preserve, build and develop the assets, rather than cashing them in.

holly_hobby

Sadie_Su wrote: »

Using the children to dig us out? :rotfl: this whole exercise is FOR the children, to give them a chance of inheriting a chunky set of assets when we fall off our perch.

Why not just effect life assurance and write a will instead.

Sadie_Su wrote: »

Easiest option for us would be to move back to House A, sell House B, pocket £300k and live comfortably for the next 25 years until we sell house A to pay for our nursing home care. Best option is for us to work as a team to preserve, build and develop the assets, rather than cashing them in.

The problems you have are that in order to acheive what you want with retention of assets (and future growth) , is that either way a mge is needed to facilitate the exercise, with the issues re your children effecting a TOE and borrowings having been noted by several posters within this thread, inc the fact that either with or without the children hitched onto the mge, the max term (interest only OR C&I) will be restricted by you/partners age and income and how may yrs until (with most lenders) the oldest of you reaches 75 yrs old (or just 65yrs with HSBC on IO), assuming as I say that your income in retirement is acceptable.

Indeed, even if your children purchased property b completely from you enabling the redemption of the current interest only mge you hold, we then have possessionary issues of the lender, with you remaining resident in the dwelling post completion ..... so you can see that every possible solution raises yet another hurdle

So whilst I apprciate that you would like an instant solution here, and I would love to be able to say yes your requirements will easily met, this couldn't be farther from the truth I'm afraid - and some compromises (as you don't have a repayment vehcile for property b) will have to be met to try and achieve what you want (apart of course from the easiest and obvious solution, which would be to sell one of the dwellings to enable you to redeem your interest only resi mge when the mge comes to its end in 7 yrs).

Or you seek a mge with a lender whom doesn't have an upper age limit - of which there are only a couple Nat Counties being one (again subject to status and post NRA income).

Hope this helps even if it doesn't make you jump with joy ... but given the issues, I can't see a cleaner solution other than the BTL equity release exercise I've discussed ..... maybe others will see the wood for the trees !

Holly