Home Reversion/Equity Release

candy8234

We have a mortgage free home, we are 60 and 61 years of age. We are both still working, maybe for about 4 more years. Our daughter has been widowed at a young age, and owns a house outright, but wishes to move near us which is a more expensive area. She will need to raise some money, which she is unlikely to be able to finance completely with a mortgage in her current position, she has 2 children. As her and her sister will inherit our house at some stage, we would like to find a way to use the equity in our house now to help her at a time when she needs it. The amount needed is unlikely to exceed about 20% of the value of our property. We don't like the idea of a lifetime mortgage, where the interest racks up, but are there also major drawbacks with a home reversion scheme? Thank you in advance for any advice.

holly_hobby

Home Reversion scheme is a lifetime mortgag arrangement, but instead of interest roll up, this is where you effectively sell a % of equity ownership in your home in return for a capital advance.

Typical min age of youngest application 65 yrs old.

I should say that there are providers whom on a lifetime mortgage arrangement will permit you to pay interest each month, to effectively ringfence the debt. Looking at 6%+ - so not a cheap solution.

My advice would be really restrain from going this route, she has a property which is mortgage free, if living by you is the goal, could she not rent this out until sold ? And use the rent recd to supplement or pay her rent by you ?

If you are determined to go the equity release route, it is a specalist area of advice, you will need to source a qualified and regulated equity release adviser ( SOLLA for a list of local independently accredited advisers - http://societyoflaterlifeadvisers.co.uk/), also Equity Release Council (previously SHIP) will give you guidance on the various schemes and advisers - http://www.equityreleasecouncil.com/home/). - any provider you choose should have a negative equity clause.

Anyhoo, some basics to get you started ...

Hope this helps

Holly x

candy8234

Thanks for your reply Holly. Renting out isn't really a long term solution. She wants to sell the house as quickly as possible and use the money as a deposit on a new home near us. The equivalent size house in our area is probably about £60,000 to £70,0000 more than the value of her house so we need to find a way to raise that amount. She is self-employed in a part time role while the children are young, but because she should be getting widowed parents allowance once her claim for it is dealt with, she could probably afford a mortgage for the above amount, but I'm not sure if she would get one in her current position. I have tried to find out on line if the widowed parents allowance would be included as income for the purposes of a mortgage but haven't really found the answer yet. Another possible answer is if we could borrow the above figure against our house and she pays us, but then because of our ages I assume we would only be able to borrow it over a short term and then the repayments would be too high for her. Any ideas about how we could borrow long term. We have kept our mortgage open with a balance of £1 with the Nationwide so may be able to borrow from them. I believe if we had a lifetime mortgage where we paid the interest only it could work, but would be expensive as you say at about 6% and there would be a penalty if paid off early. Is there a way something like that could be converted when she is in a better position to a repayment mortgage? We both have quite good pension schemes also where we will be getting lump sums when we retire of about £80,000 or so in a few years so we will have the means to lend her money from that. Sorry for all these questions, but I just feel there must be a way to do this, that doesn't have to cost the earth, because of the equity we have, and the large deposit she will have for a property. Thanks in advance for any advice.

holly_hobby

Yes, you're right most lenders do have an upper age restriction (on redemption) of 75 yrs (of the oldest applicant, inc Nationwide) - so presuming income during the term is sufficient to service, you're looking at a max term of circa 14 yrs on a repayment basis - which may or may not be affordable to you - give NWide a call to sound out if they will permit a further advance for this reason, and what the figs involved are.

If running to age 75 isn't affordable, there are a very small number of lenders, whom do not have the upper age restriction of 75 yrs, but its very much a case by case basis (low LTV wil certainly help), with of course your income being both appropriate and sufficient to support the mortgage throughout your preferred term.

Daughters DWP Widows allowance is an acceptable source of income for providers, although some lenders will treat it as secondary income and therefore not take 100% of it.

Anyhoo, as you can see there may be solutions to the issue - either with you or daughter sourcing a mge herself (dependant upon her SE trading, SA302s and reqd mge), without you resorting to a lifetime arrangement, which although suitable for some peeps, is really a last ditch route given the fees, chargeable interest, erosion of the individuals estate and early exit charges ...

A decent mortgage broker will be aware of the lenders being discussed ... ensure you engage a whole of market bod !

Hope this helps ... with best wishes to your Daughter, my Mum was a young Widow so I know how tough it can be, but she's obviously got a fantastic support network with Mum & Dad xx

Holly x

Minrich

We are in a similar situation with a mortgage free house worth around £250000 . Our daughter cannot afford a mortgage on her own and we want to re mortgage our house and give her say £100000 together with about £35000 from our savings to get her onto the housing ladder . We thought she could then sort of rent it from us but in a way pay the £100000 mortgage we have on the house . Is this something you could do ?

holly_hobby

Hi Min,

Who's name would you be purchasing Daughters house in ?

Yours or her's ?

How old are you ?

Will she be claiming housing benefit ? Or paying you rent from her own income ?

Do you have sufficient income (inc any post retirement requirement) to support a 100k remortgage ?

If you can give a bit more meat to the bones, we can take it from there as to what is or is not possible, and/or the best way to manage the capital raising reqd.

Hope this helps

Holly x

Minrich

In our Name
She is earning and not claiming benefits of any sort
She pays £450pm rent now and will pay this to us by STO or DD
We have £100k+ in several locations , i am between jobs and wife still working part time , our monthly income is around £2k without interest/divi and other income. I may not work again but get £1400pm pension , i am 50 wife 48.
When she can get a mortgage (Earns enough) she will take over the house and it will be transferred into her name

holly_hobby

You are presently too young for any lifetime equity release mortgage - min age typically 55 of youngest applicant.

So, you are looking at a residential remortgage on your own home or a regulated BTL if you secure the mortgage on the property to be purchased (as property will be more than 40% occupied by famiy member), which means in both cases that affordabiilty will be based on your own income and age.

Investment income (bar in certain circs rental income)/dividends, or interest on savings can not be used as income for mortgage affordabilty purposes.

Your joint income is 24k pa (future rental income from daughter can not be included) - which means you are currently looking in excess of 4 x joint income - a big ask - but may not be impossible due to the low ltv (term of 25 yrs available as you are relatively young at 50).

When Daughter is earning enough she can't simply take over the mortgage and house, she will have to apply in her own name and will be treated and assessed as a new borrower, so sufficent income and a nice clear credit record will be helpful at the time !

I would engage a whole of market broker to facilitate your remortgage, whom given your clean credit record and the low ltv of 40% (assuming it values up at 250k), stands a decent change of being able to obtain an underwriters mandate decision (ie os of normal criteria) on the relatively high income multiple reqd.

You could of course purchase for cash with the 100k you have on deposit OR use some of this to reduce the reqd amount of borrowing within standard income mulitples, which will open up more providers to you, and make your brokers job easier !

Upon receiving rent from daughter, you should be aware that you need to declare this to HMRC, even if there is no tax to pay (as you may dedcut the assocaited mortgage interest from your mortgage used to purchase the property, along with other deductions), it still needs to be reported by annual self assessment.

Another issue, is that the owership of a 2nd property, will affect any application for means tested benefits - so do bare that in mind if you think this may affect you.

Upon sale to Daugher, or A N Other, you will be exposed to CGT (less permitted deductions) on the difference between the purchase (acquisition) price and sale proceeds (or market value if sold at a discounted sum to a connected party). And there may (depending on several issues) be an issue re deprivation of assets, if sold under value, with a subsequent application for long term care financial assistance submitted.

Lots of info and issues to digest, but hope this helps if you decide to pursue ..... she's a v lucky girl to have such supportive parents x

Good luck guys ...

Holly x