Parents want to retire but still have a mortgage!?

Splodger

Hi, I'm new to this forum but I need some advice, so here goes....

My parents are 67 and 64 and are still both working but wanting to retire. They are hesitant to give up their incomes due to having a mortgage on their home.
Their house market value is £160k and their mortgage is £58k.
They have private pensions which when/if cashed in will give them around £25k to £30k.
Their son lives at home and has an income of £10k per year which he has been told will raise him £36k mortgage.

The hopeful conclusion to this scenario is for my brother to end up owning the house (albeit with a small mortgage) and my retired parents living with him.

All sounds great, but my questions are; what route can they take to get from 'a' to 'b'? And what advice can you give to them?

Many thanks
Splodger

Annisele

It may be difficult for the brother to get a mortgage in his sole name if the parents are going to stay in the house. Any lender would want to make sure it could repossess if the borrowers stopped paying. If your parents gift a huge amount of equity to your brother, they'll likely retain rights to the property - that would make repossession difficult, and so lender's won't be interested in the arrangement.

From your parents' point of view, putting the property in your brother's sole name puts them at a lot of risk. They may trust your brother absolutely, but they can't be sure he won't get married/divorced/go bankrupt/become too ill to work/etc.

How much income will your parents have from their pensions? Would they be able to meet the payments on a repayment mortgage for £30k or so (possibly with using rent from your brother)?

Splodger

Thank you for your help,
That would depend on the length of the mortgage, they are currently being offered what they can afford now, but can't afford when they retire. Is there a maximum age for mortgages?

With what you have advised, and if I'm getting this right, they should cash in their private pensions to pay a lump off the mortgage, leaving a maximum of £33k. Then try and obtain a mortgage for a longer period of time with a new lender, allowing them to afford the repayments and retire at the same time?

Annisele

Technically there isn't a maximum age for mortgages, but the majority of mortgage lenders won't lend beyond the age of 75.

If the older of your parents is 68 next birthday, that would make a term of 7 years. If they got a £30k lump sum and used it to reduce their mortgage to £28k, then they'd likely be paying in the £350/£400 a month range over that term - would that be affordable on their pensions plus a contribution from your brother?

(To be clear, I'm not advising anything - that's not allowed on these forums. I'm just asking questions and sharing my opinions).

Splodger

Thanks again, I really appreciate your help,
I understand you are not advising, sorry, just getting used to this.

Two last questions, if you have time to reply,
At the moment my brother doesn't contribute directly, he just buys the weekly shop or taxes the car for our parents. If he was to do this properly, such as a rent per month, can my parents declare this as an income to help with their mortgage application?
Secondly, do you think, if they took off the older person would this help or hinder? Should my brother be named on the mortgage?
Thanks again

pjread

Whilst mortgage might be awkward with parents in situ, how's his credit generally?

30k might sound a lot but in the greater scheme of things and with negligible outgoings from the sound of it, I almost wonder if you could cover it without one being a bit creative - e.g. between stoozing, a bit of overtime and maybe selling a few bits and not buying a PS4...

Failing that I wonder if a lender would accept a written/signed undertaking relinquishing any rights from the parents. I'd guess you'd be talking about a small/'fringe' lender at best but probably no harm talking to a good whole-market broker.

Prothet_of_Doom

You parents already have a mortage of £58K, and an pension income of £25k ?

Or a lump sum of £25K ?

The former is enough to service the interest.

On a separate note, how old is the son, and how does he intend to survive in the real world on £10K a year? You should be asking how you get him enthused about work, to go out and develop new skills to tripple his income.

squeeks

Prothet_of_Doom wrote: »

You parents already have a mortage of £58K, and an pension income of £25k ?

Or a lump sum of £25K ?

The former is enough to service the interest.

On a separate note, how old is the son, and how does he intend to survive in the real world on £10K a year? You should be asking how you get him enthused about work, to go out and develop new skills to tripple his income.

From the posts it appears that the the 25 - 30K is the total pension pot size rather than the yearly income from the pension.

CLAPTON

how much income will your parents have when they retire?

how much cash?

how old is your brother that lives at home?

Splodger

Thank you for all your help, my parents income if they both retire will be around £1500/4weeks, and my brother is 33.

Mortgage is 58k
Pension if surrendered is worth £25k to £30k

Any help or ideas appreciated, thanks again.

dancingfairy

It might be worth investigating if the son could buy the house at the market rate. Note it would have to be at the market rate so there is no issues with deprivation of assets etc.
He would presumably get a standard residential mortgage.
It is a bit unusual that the previous occupiers would live with him and he obviously wouldn't be able to insist on vacant possession but I would have thought it would be possible.
It might be a lot trickier if he wanted to grant them permission to live in the house as long as they lived but on an informal, living with relatives basis I can't see it being a problem.
Obviously your parents may have to take it in trust that they can continue to live in the house but if they have the proceeds from the sale of the house then if needs be they can buy somewhere else/rent somewhere.
I guess the problem would be getting past banks rules/regulations and finding someone who could look at it on a case by case basis rather than a computer says no type situation. It might be worth having a chat with a mortgage broker.
df
Edit: I've realised the brother can't afford to buy the house outright with his income and possibly no deposit.