Helping my mum

Pay_Da_Gals

Hi, my mum has just turned 60, she owns two flats both worth about £170k, one she lives in and one she rents out, but this is not enough money to live on and has no real savings to speak of. She has just lost her job part time job and is struggling to find a new one. She is perfectly healthy, but damaged her knee in 2012 and now has difficulty walking and standing for long periods of time. My mum is desperately stressed and unhappy about the situation she is in.
I would like to buy the flat my mum lives in – this would give my mum the additional money she needs to live without working so she can ‘retire’ making her happy, and I will have an investment in the flat she owns.
Also I do not have the full amount of cash to buy the flat outright – there would be a large deposit now and then monthly payments to my mum. I do not want to get a mortgage as I would rather the full amount of money goes to my mum and not the bank.
Basically I want to give my mum money each month as she needs it (I already give her money each month to support her income) and in return I’d own her flat, but I am not sure about doing Gift with Reservation as my mum needs to live in the flat and cannot pay me rent as she doesn’t have any money. I would own the flat so there would be no issues with IHT. And then if my mum needs care in later years she can sell her second flat to support the cost, I am not trying to swindle the local authorities, just support my mum.
Any advice gratefully received..
Many thanks

Tropez

If I have this right, what you wish to do is have your mother sign over the flat she lives in to you and then you give her so much money a month?

tea_lover

If the other flat isn't profitable, why doesn't she sell that one?

CH27

Why doesn't she sell the other flat?
Have you checked she is claiming any benefits she may be entitled to?

Ozzuk

I really don't get why your mum doesn't just sell. What does she want to do? I'm assuming she has no mortgage (otherwise how would she pay that off) so let her sell and enjoy the money.

Anything else just seems like a complete minefield and not in your mum's best interests. Yours maybe (perhaps that's harsh). Its not a bad time to sell, market is stable in most areas. Sure it could appreciate but she needs the money now.

LannieDuck

There are pitfalls with that type of arrangement. Make sure you and your Mum are both very clear about the agreement and that you can honestly afford any 'rental' payments going forward.

What if you lose your job and can't afford to continue giving your Mum money? Would she be happy to sell up if you needed to access the cash you've injected into her house?

Do you have any siblings? Where will you stand if your Mum passes away before you 'buy' the whole flat from her?

There's a long thread on the housing board where someone entered into this type of agreement then hit hard times and wasn't able to sell the house to downsize his parents because the agreement had given them the right to live there rent free for the rest of their lives. Not quite the same circumstances, but perhaps worth a read. I can't recall the name of the poster offhand, maybe someone else can?

BigAunty

Pay_Da_Gals wrote: »

I do not want to get a mortgage as I would rather the full amount of money goes to my mum and not the bank.

That is not correct.

Is it perhaps the case that you can't secure a mortgage on your salary for the property's current value and this is why you are shunning the typical process to buy a property? Are the properties worth 170k each or is that the joint value?

Or does she still owe the mortgage lender some money on that currently rented out property? And for some strange reason, both of you think you must pay over the odds by paying the balance owed to the mortgage lender AND the full value of the property, meaning that instead of getting the true equity (value of the property minus mortgage owed) which happens with nearly all property transactions, the liability somehow falls onto you?

If you could be granted a mortgage to purchase your mother's property,she would receive the full funds upon completion (value of property reflected in the mortgage/deposit that you offer, minus any outstanding mortgage she owes to her lender, if any).

For example. Property valued at 85k and owned outright. You put down a deposit of 20k with the mortgage lender and get a mortgage of 65k. Upon completion, your mother's solicitor would receive 85k in her bank account (less solicitors fees).

If your mother owed her mortgage company 30k, upon completion of the sale, her solicitor would arrange to pay off the balance owed to the lender, and she'd get 55k (less solicitors fees) in her bank account.

That's how the property conveyancing process works - the bank doesn't 'keep' the full amount owed to your mum - she, like any other seller, gets the true balance owed, paying off any liable debts to the lender, a very normal activity!

BigAunty

There are 3 main routes to gaining ownership of a property from a relative.

1. You buy it at full market value which avoids issues around deprivation of capital/deprivation of assets for the seller which they can experience if they merely transfer it for free or less than its value and then try to claim means tested benefits or residential care services.

The Age UK website has good information about the risks involved in someone of mature age gifting their property away which is something you have outlined as undesirable.

For some reason, you have decided to shun the typical route of ownership via mortgage lending. This is a shame since your mother would receive the full equity up-front as part of the standard outcome of the conveyancing process.

Your barmy scheme to pay it off directly via monthly payments means that if you get sick or lose your job (like your mum is currently experiencing), you will cause her great hardship.

As indicated in a previous post, on the housing forum we regularly see schemes like yours backfire and children, whose financial circumstances have changed, have family relationships breakdown when the ownership hits problems, some actually have to evict their parents to stave off bankruptcy!

2. She gifts you the property but the risks/issues are outlined in my previous point.

3. You inherit it when she passes, assuming that it doesn't have to be sold to fund future care home costs and that she doesn't gift it to the cats protection league.

Clearly, she can't afford to run two properties on her limited income. If she experiences a non-paying tenant, significant repair costs or void period in the letting, it could lead to more hardship. Perhaps it is better to concentrate her time/energy into securing employment as a way to better make ends meet.

Whether she will alleviate her poverty by selling her property to you without involving a mortgage lender is up for debate, sounds a risky prospect with very bad consequences if it backfires.

BigAunty

"I do not want to get a mortgage as I would rather the full amount of money goes to my mum and not the bank. " Please elaborate further what you mean by this?

In my previous post, I think I mis-understood your point. I thought then that you were worried that she wouldn't receive the full balance/equity of the property if you involved mortgage lenders and I was able to demonstrate that it was baseless.

Now I think your concerns are not with what your mother receives but with what you will have to pay. Am I correct in assuming that the thought of interest added to the loan by the lender appals you?

Are you planning to pay your mother for the property on commercial terms, which includes a standard interest rate for the property or will this be on an interest free basis?

What happens, if, for example, your mother sadly passes while you have only managed to pay off say 10% of the 'loan'? Will you be paying the other 90% due to any other close relatives who may have stood to inherit her means, under the law or expressed preference in her will?

What happens if you lose your job or become disabled/sick and can no longer pay for that property?

Jackie132

Since your mum already have two flats costs 170K pound, and one is rented. She is earning from them. Then, why are you looking for another one.

Pay_Da_Gals

Thank you for coming back to me so quickly – I really appreciate it:)

To answer a couple of questions

I have 1 brother and 1 sister who are not in a position to purchase or to contribute finically to support my mum. I have spoken to them and they are happy with the situation as they only want to see my mum happy. They understand that any part of the flat I have not bought will be shared then equally between the three of us and the 2nd flat will be shared equally on my mother’s death.

I am a freelancer so am unable to get another mortgage at this time, as I currently have one my own property.

With regards selling the 2nd flat my mum needs the money from the rent on top of what I can give her. And if she sells her flat it will not give her enough money for the long term if she hopes to live 25years it would work out at less than £400 a month as a fixed rate – which isn’t enough for her to live on now or in the future….


I do not want to appear stingy – but I am going to be giving my mum money whatever happens. I do not have limitless supplies of cash so instead of putting £5k a year away into an ISA to protect my future, I can support my mum and then once I have paid the full amount for the flat she paid for and paid for its upkeep and she has had a lovely place to live in and still has an asset 2nd flat to leave to all her children.
As it is a direct purchase from my mum I would save myself £56,000 in interest if I got a second mortgage at 3%