Taking on father in laws mortgage

BigGeorge

My father-in-law has been talking about his desire to ensure that my husband inherits his house one day. He has also expressed concerns about paying his interest only mortgage. He has suggested that my husband and I could take out a mortgage on the house for the amount he owes and therefore he would not have to be worried about not being able to make payments.

As far as I can gather it is not a means to avoid paying care home bills as he is currently hail and hearty and if he did need to have care the house would be sold to pay for it and that would be that.

Can anybody help me with the pitfalls of doing something like this please? We don't want to embark on anything and then find out it was illegal!

Any advice would be gratefully received.

comeandgo

So does your father in law have anything in place to pay off his mortgage?

GMS

He cannot continue to reside in the property if this was the plan as he is gifting the deposit.

Mojisola

BigGeorge wrote: »

My father-in-law has been talking about his desire to ensure that my husband inherits his house one day.

He has also expressed concerns about paying his interest only mortgage.

He has suggested that my husband and I could take out a mortgage on the house for the amount he owes and therefore he would not have to be worried about not being able to make payments.

As far as I can gather it is not a means to avoid paying care home bills as he is currently hail and hearty and if he did need to have care the house would be sold to pay for it and that would be that.

If he's got an interest only mortgage and no way of paying it off, it isn't his house! He may as well be living in a rented property.

He's not giving his son an inheritance if his son buys the house off him.

If you and your OH could get a mortgage for a house while a relative (and the previous owner) continues to live there, what would happen if life changed for you and you weren't able to meet the payments?

When does the mortgage finish? He may be better off selling the house and moving into rented accommodation.

holly_hobby

There will certainly be issues from the lenders point of view, not solely based on gifting a depost and residing.

If Dad sells to you and hubby and he is to remain resident post completion - this presents possessionary ownership issues, which can prevent a successful repossession order via the courts, and why lenders always insist upon vacant possession, and won't entertain this arrangement (if made aware that the vendor isn't moving on).

So, lets set that aside for now.

He appears to have an interest only mortgage (mge), without any indpendent repayment vehicle. But we don't know about his os mortgage, property value, remaining term, age income, any savings, etc, - to that end have you/Dad considered making lump sum reductions to the mortgage to reduce as much as possible the amount owing ?

And/or as you were contemplating purchasing Dads house with a mortgage (which would be on a repayment basis UNLESS you have a suitable repayment vehicle to support an Interest Only arrangement), I assume you have, together with your own commitments, the income to support this and are happy to pay the mortgage repayments ?

If so, and to circumvent the post completion residency of Dad, you could effect a transfer of equity (adding you/hubby) to the deeds and mge, and tsf the mge to a repayment mortgage based on your income, which would ensure repayment of debt at mge end.

The issue will be, if Dads income is also needed, if this is the case and if the term reqd to make it affordable, will take it past Dad being 75 (which is the ceiling age for most but a couple of lenders), you'll have some issues (although there are a couple of lenders whom don't have the upper ceiling).

If however, you and/or hubby's income (whomever goes on with Dad), is sufficient to support your own commitments and the mge, several lenders will set aside Dads age and work on your own instead - which will open up the term for you - be that with his current lender or an alternative one (via a remortgage exercise). TOE costs circa £500 & lender fees. And i would effect life assurance on yourselves/whomever goes party with Dad, so that if you pre-decease him, the os mge can be paid off, relieving him of the financial obligation (which may exceed his own sole pension income) and securing his home for his lifetime - if a repayment mge is effected this could be written as a Decreasing Term policy, which is the cheapest form of life cover available in any event (your broker will guide).

You should also be aware that as a 2nd property, when/if you later sell the property that any gain realised will be exposed to CGT to a lesser of greater extend, depending upon any residency, and other reliefs/exemptions that may be applied at that time -and ownership of a 2nd property will affect any application for means tested benefits (which may or may not be an issue).

If this isn't possible/agreeable, and depending upon the os mge to market value, and Dad being 55+, he could look to the lifetime mortgage market.

Repayment is not until entry into long term care or death (which ever occurs sooner), with assessment not based on affordability (as with traditional mge arrangments), but on a minimum age and suitable value/LTV of the property. And whilst the traditional arrangement sees the roll up of interest on the os debt (which will obviously over time erode the free equity), there are now several lenders in the market whom permit the payment of interest on a monthly basis, to effectively ring fence the debt, and protect the free equity for beneficiaries (which of course irrespective of this would still be subject to normal market conditions).

Would this be a solution ? Where you could assist with mthly interest payments to the provider to help ringfence the debt and Hubby's inheritance (notwithstanding redemption/settlement fees), all whilst keeping Dad in his home for as long as possible ?

I would suggest sitting with an experienced mortgage broker, whom can discuss the options re TOE etc.

If lifetime mge advice is reqd, you'll need a specalist adviser whom is authorised and regulated in this area - equity release council (prev SHIP) and Society of Later Life Advisers can assist. - links below.

https://forums.moneysavingexpert.com/discussion/4882190

http://societyoflaterlifeadvisers.co.uk/

Hope this helps

Holly xx

BigGeorge

Thank you for the replies. You are fabulous!

Having read your advice I have dug a little deeper and he isn't worried about being able to meet the mortgage payments (my mistake). He is actually worried because he is 75 this year and doesn't want to go to his lender for a better deal because he thinks he may be too old to get another one. The situation has arisen because my mother in law got half the value of the house when they divorced about 4 years ago so this is new territory for all of us.

I think specialist advice may be required. Thanks for pointing me in the right direction.

Thrugelmir

BigGeorge wrote: »

He is actually worried because he is 75 this year and doesn't want to go to his lender for a better deal because he thinks he may be too old to get another one.

When does the existing mortgage end? This in itself may pose issues.

holly_hobby

BigGeorge wrote: »

Having read your advice I have dug a little deeper and he isn't worried about being able to meet the mortgage payments (my mistake). He is actually worried because he is 75 this year and doesn't want to go to his lender for a better deal because he thinks he may be too old to get another one.

Ok, as above, when does the mortgage end ?

Inetrest only without a suitable repayment vehicle (setting aside lifetime mge arrangements for the time being) are generally no longer available, I say generally, as there are select lenders, where if the LTV is low, will consider an IO arrangement - your broker should be aware who they are.

So, Dad would be looking at a repayment mortgage, which if he has sufficient gted income throughout the mortgage term, there are a couple of lenders whom don't have the upper 75 age ceiling, as long as I say the assessed income is suitable - again your broker should be aware of the options.

Hope this helps

Holly x