Remortgaging Parents Lifetime Mortgage

BarleyGB

I would appreciate some advice please.

Parent has a lifetime mortgage @ 7.79% accruing each year. I want to look at options for remortgaging to refinance the debt.

Parent would not be able to remortgage as retired so it would be in my own name and result in the property changing hands.

I have my own mortgaged property at <70% LTV
Parents current lifetime mortagage <40% LTV

I see two options,

I buy parents property from them (for a nominal amount?) take out a new mortgage to repay lifetime mortgage, or take out an even larger mortgage to repay both the lifetime mortgage and my own mortgage, thus consolidating into one loan on the property.

By refinancing at say 3%, I could save in interest over 3 years what the lifetime mortgage provider would charge for early payment. Beyond this the saving would accrue into thousands (£100,000 in 10 years).

Affordability is not an issue, nor is trust.

How would this transaction work, is there an issue with the parent being a sitting tenant? What are my options?

fiesta04

I would suggest that you find a good broker. Sorry I cant help.

F4

originalmiscellany

Qns: Why is the interest rate so high?

BarleyGB

Rate was high as its quite a long standing lifetime mortgage (equity release), I assume rates were higher then and at the time was the best way to raise money. In hindsight there may have been some financial naivety?

No doubt I will have to consult a broker but would be comfortable doing it myself (to avoid fees) as long as I knew the ins and outs of lending policy in these circumstances.

Annisele

You're going to struggle to take out a mortgage in your name on your parent's property (whether or not you buy it from them).

The problem is that - from a lender's point of view - if you don't pay the mortgage on your parent's house the lender will want repossess the property. But your parents sold the property to you in the expectation they'd be able to live there for the rest of their lives. So, your parents would probably have rights over the property - making it extremely difficult for the lender to take possession of it. That means the lender doesn't want to get involved in the first place.

Depending on the value of the houses, you might be better off borrowing against your house to repay the mortgage on theirs.

holly_hobby

Hi there,

You won't be able to pch your parents home and they remain resident post completion - this is in connection with beneficial ownership and how it will negatively affect the lenders future right to seek possession proceedings.

As Anni. suggests, raising the finance on your own home, subject to free equity and income, to repay parents lifetime mge (and its ERCs), will be the way to go with this.

Lifetime mge rates are higher than traditional residential mortgages,due to the possible duration of overall term (designed for payment on entry into long term care or death).

Hope this helps

Holly x

BarleyGB

Thank you all for the advice, seems this isnt as straight forward as I had imagined?

There isnt an option to raise the money on my own home, well not enough to clear the lifetime mortgage.

I'll possibly have to see a Financial Advisor? Is it worth it though, are there any options they can offer me? commercial or BTL type lender?

I understand the issue with beneficial ownership, is there any way to get around this?

holly_hobby

You won't be able to purchase with a mortgage, either on a residential or semi-commercial basis aka a regulated buy to let (which is also prevented under sale and rent back agreements), due to no vacant possession and parents remaining resident post completion, and for the reasons I have explained - it prejudicies the lenders security, which is why (when they have the full picture) they don't want to know.

There is no way around this, other than parents moving out and living elsewhere.

You may go to see an adviser, whom depending upon experience, may be unware of the complications of such an arrangement (from a lenders point of view), and whilst this may pass initial underwriting on you and the property as being in a mortgageable condition, when it comes to the conveyencing your solicitor will have to advise that there will not be vacant possession on completion, the lender will pull out - and at that point you'll probably have incurred both mortgage and legal fees, which will be non-refundable.

A poster (not an adviser) on here did say that Santander had accepted their mortgage on this basis, but from my longstanding professional experience I'm doubtful if this was the case, if the lender was in full possession of the facts re the vendors being post completion residents.

Anhyoo Barley, sorry if this wasn't what you wanted to hear, but hopefully its explained the situ.

Hope this helps all the same

Holly xx

Brock_and_Roll

Also assuming that such a deal was possible, there would a potential "Deprivation of Capital" issue that is likely to be picked up should the parents ever require state-supported long term care.

holly_hobby

Setting aside its a no go if a mortgage is required by the OP to pch their home.

If Donor within 2 yrs of transfer/sale occuring, reqd and applied for long term care (LTC), then yes, the local authority (LA) would probably be succesful in their claim of depriviation of assets (DOA).

However after that point the LA would have to prove that the Donor at the point of transfer, were aware (or could prove it would be reasonable of them to have suspected) that they would require future LTC assistance, for any DOA claim to be successful - which isn't as easy.

But this was a good point to raise Brock.

Hope this helps

Holly

BarleyGB

Thanks again for the replies, I pretty much realised this wouldnt work from the first mention of 'beneficial ownership'.

I can understand how most financial advisers wouldnt appreciate the complications and wounldnt want to waste money for the loan to be withdrawn at the conveyancing stage.

Thanks again