Paying off my parents' mortgage...

Frizzylogic

My parents' (both now retired) remortgaged their house during the height of the property boom in order to pay for some repairs to damage caused during a very bad winter (their insurance company refused to pay up, but that's a whole other saga).
At the time they were planning on selling the house (a developer offered them £250,000 for the house plus the land around it) and downsizing so they took out an interest only mortgage - around £70,000 as I understand it - thinking that with £250,000 they could easily pay off this and still have enough for a new, smaller home.

Obviously circumstances have changed significantly since then and my parents are stuck paying off an interest only mortgage on their pensions. They are coping okay at the minute but if one of them dies, the other will be in dire straits trying to pay it back on a single pension. Looking at recent sales in the area the value of the house now is probably between £100,000 - £125,000 - I've asked them to get a couple of valuations to clarify this.

What I would like to do is buy the debt and house off them - get a mortgage myself, move back in with them and pay it off properly. They can help out by chipping in for living expenses etc - stuff they would be buying anyway rather than pouring their pensions into an interest only mortgage. My problem is that I only earn around £23,000 a year. I would never be able to get a mortgage for the full value of the house - even with the dip in house prices. I don't want to rip my parents off by trying to buy the house 'on the cheap' - plus I'm sure it's probably illegal. I love them and will move back in and help them out with this pointless debt - but I would much rather look for an actual home I can afford to BUY and OWN with my hard earned money rather than throw money at this interest only millstone they are lumbered with. There are properties in my price range now that the crash has happened.

I'm not sure what our options are here. I feel a little hopeless and overwhelmed. I have suggested they sell, pay off the mortgage and we'll find somewhere within my price range where we can all live. My Mum does not like this idea - they both still very hale, hearty and active. Plus she doesn't want to leave the family home - they have been there nearly 40 years now. I must admit - I don't want them to sell either but we're going to have to deal with this situation eventually. Has anyone any advice?

Thrugelmir

£70k for some repairs?

Anyway, why not move back in and contribute to the household budget. Will you inherit the property one day?

sandsni

If they are still "hale hearty and active", maybe one or both could get a part-time job to earn some extra income and pay off their debt. I know it's difficult to see your parents struggle, but it is their debt, not yours, and it was their choice to remortgage.


As Thruglemir says, there's nothing to stop you moving in and helping them pay off their mortgage without you having to "buy" the house from them. If they did sell it to you and they later needed care or means-tested benefits, there might be "deprivation of assets" issues to consider.

Annisele

I don't think you'll be able to get a mortgage in your sole name to buy a property that your parents continue to live in.

You might be able to get a joint mortgage in all three names - either a brand new one, or have you added to the existing one. Whether that's a good idea is another thing entirely.

If you enter into a financial arrangement like that, it would have to be long term. So, if one of you married/got divorced/died/had children/got into other debt, it would affect all of you. You might find that in five years time (or even six months time) you want to move in with a partner, but you can't because you're stuck paying your parents' mortgage.

How much would you pay to rent a room / become somebody's lodger in your area? Could you move back in and pay your parents that money, on a very temporary basis, with the idea that they'd get some other lodger when you moved out? They could then use the money you pay them to make capital overpayments on their mortgage.

wwtrend

You could consider moving back in and contributing towards the mortgage and put a charge on the property for the monies you have put on or even put yourself as a joint owner if you are living there and contributing towards the mortgage That way if anything was to happen in the fhopefully distant future your interest in the property would be safeguarded. Why don't you get some legal advice on this, If you go back to live there and pay the money you would have spent on rent as an additional amount into the mortgage you would be surprised how quickly it would get paid off. If it's interest only then speak to the mortgage holder about paying down the capital sum. Always a really good thing to do. Maybe your parents would allow you an equity share in the property over the next four/five years etc. That way if the property rises in price so will your equity share. Keep a record of your contributions to the family home. As you say they are both hale and hearty at present and long may they remain so once the mortgage debt is paid down they may be in a position to buy your share back if you wanted to invest somewhere else. I'm not sure 23K would buy you much especially on your own so why not buy the share now.

If your parents have room for you to move back then I expect they have room for a lodger. I thought you were allowed to earn $3250 tax free before and tax liability kicks in but I saw a forum where someone said £4250. anyway it's on the Government rent a room website. Another option is that if one of you parents dies then a lodger can be considered at that time.
If you already own a share in the property in four years time you are likely to be able to get a mortgage for the rest if that's what you want. The money already paid into the property could be counted as 20/25% deposit paid.

If your parents property has sufficient land for another property to be built on it then that is still worth a lot to a developer and investor. It may be the developer would have taken down your parents home and built two together only a bit smaller. Building land is still getting snapped up and will always be in demand. You might want to consider having some plans draw up and getting planning position at some time in the future. Planning permission will always raise the value of the property/land. I think you have quite a few options to consider and there are sure to be more.

The thing is you are starting out in life and I'm sure your mum and dad would want you to be out there doing what young people do rather than worrying yourself about them. If it makes financial sense for you to invest in their property now them consider the options but I think there are still options available if either was left on their own. Women are usually sentimentally attached to the family home than guys and it sounds that it might be quite big for one person alone. So there is still options if one parent was left alone. Sale, equity sale, you getting a mortgage, lodger etc
combination of some of these.

As someone has said a lot can change in the life of a younger person in 4 years whereas mum and dad are pretty settled in what they are going to be doing in the future.

Good luck

00ec25

there is nothing illegal about buying out your parents for whatever sum of money they want, which is your case is 70k as that would be the amount needed to clear the current mortgage

however, you need to fund it using a mortgage and therein lies your problem because:

a) you presumably don't have a cash deposit saved up? If not then you are looking at what is called a "vendor gifted deposit" , ie the property is worth more than you are borrowing against it so the difference (the equity) is treated as the deposit which is being gifted from the vendor to you. The fact the vendor is your parents will restrict the number of lenders willing to do this as some simply do not offer mortgages in such circumstances

b) as others said above the lender will not allow people who previously owned the property to continue to live in it UNLESS those people are also included in the new mortgage because your parents have rights in the property which would make repossession difficult unless the parents were also party to the mortgage. So the problem then is if your parents are included in the mortgage will they pass the test to get a 70k mortgage. Your info suggests not

so whilst it is perfectly possible for you to get a 70K mortgage, the need to include your parents will probably scupper your plan but you have nothing to lose by checking with a mortgage broker and finding out for sure. If you do nothing then how much longer has parents interest only mortgage got to run and what will happen then? Will parents be able to cope with having to sell up and downsize at a future date when emotionally they may be more vulnerable than they are now

00ec25

wwtrend wrote: »

If your parents have room for you to move back then I expect they have room for a lodger. I thought you were allowed to earn $3250 tax free before and tax liability kicks in but I saw a forum where someone said £4250.

it is £4,250, which you could have checked instead of taking time to type the next sentence!!!
https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

Frizzylogic

Thanks for the replies - they are helpful.

Thrugelmir wrote: »

£70k for some repairs?

Anyway, why not move back in and contribute to the household budget. Will you inherit the property one day?

It was structural damage to the foundations and walls - it's a very old house. I'm willing to move back in and contribute if that's what it takes - but I'd prefer if I was contributing to pay the mortgage OFF, not pay interest only and 'inherit' a £70,000 debt I can't pay off. At the moment they're tied into the interest only mortgage. I'm not sure exactly how long for. I shall find out. It can't be that long, can it? Surely they must have the option to switch to a mortgage that pays off the capital at some point?

Nothing needs urgently done at the moment, both parents are in good health - my worry is that if anything DID happen to one of them they definitely wouldn't be able to cover the mortgage payments alone and I'll be forced to move back in anyway. I'd rather get control of the situation now and have it be my decision rather than something forced on me by circumstances. I love my parents and living with them again wouldn't be the end of the world but it's not ideal - if I'm going to spend the next 10 years paying them 'rent' when I could be paying my own mortgage I'd like to see something at the end of it. I realise that sounds selfish but I can't help feeling that way!

00ec25 wrote: »

there is nothing illegal about buying out your parents for whatever sum of money they want, which is your case is 70k as that would be the amount needed to clear the current mortgage

however, you need to fund it using a mortgage and therein lies your problem because:

a) you presumably don't have a cash deposit saved up? If not then you are looking at what is called a "vendor gifted deposit" , ie the property is worth more than you are borrowing against it so the difference (the equity) is treated as the deposit which is being gifted from the vendor to you. The fact the vendor is your parents will restrict the number of lenders willing to do this as some simply do not offer mortgages in such circumstances

b) as others said above the lender will not allow people who previously owned the property to continue to live in it UNLESS those people are also included in the new mortgage because your parents have rights in the property which would make repossession difficult unless the parents were also party to the mortgage. So the problem then is if your parents are included in the mortgage will they pass the test to get a 70k mortgage. Your info suggests not

so whilst it is perfectly possible for you to get a 70K mortgage, the need to include your parents will probably scupper your plan but you have nothing to lose by checking with a mortgage broker and finding out for sure. If you do nothing then how much longer has parents interest only mortgage got to run and what will happen then? Will parents be able to cope with having to sell up and downsize at a future date when emotionally they may be more vulnerable than they are now

This is very helpful. You're right, I don't have a deposit however I could probably raise one - I have some savings in a credit union and can borrow 3x what I've saved - which would (just about) cover a deposit.

However if they can't continue to live there that makes the whole thing moot. I'm not trying to get them out - ideally I'd like them to keep living there with me - just not wasting their pension paying off a debt that never decreases.

Thanks again for the replies. It's really helping to clarify the issue for me.

Thrugelmir

Frizzylogic wrote: »

Surely they must have the option to switch to a mortgage that pays off the capital at some point?

You need to sit down and have a frank financial discussion. As whatever the solution it needs to be a long term one.

Frizzylogic

wwtrend wrote: »

You could consider moving back in and contributing towards the mortgage and put a charge on the property for the monies you have put on or even put yourself as a joint owner if you are living there and contributing towards the mortgage That way if anything was to happen in the fhopefully distant future your interest in the property would be safeguarded. Why don't you get some legal advice on this, If you go back to live there and pay the money you would have spent on rent as an additional amount into the mortgage you would be surprised how quickly it would get paid off. If it's interest only then speak to the mortgage holder about paying down the capital sum. Always a really good thing to do. Maybe your parents would allow you an equity share in the property over the next four/five years etc. That way if the property rises in price so will your equity share. Keep a record of your contributions to the family home. As you say they are both hale and hearty at present and long may they remain so once the mortgage debt is paid down they may be in a position to buy your share back if you wanted to invest somewhere else. I'm not sure 23K would buy you much especially on your own so why not buy the share now.

If your parents have room for you to move back then I expect they have room for a lodger. I thought you were allowed to earn $3250 tax free before and tax liability kicks in but I saw a forum where someone said £4250. anyway it's on the Government rent a room website. Another option is that if one of you parents dies then a lodger can be considered at that time.
If you already own a share in the property in four years time you are likely to be able to get a mortgage for the rest if that's what you want. The money already paid into the property could be counted as 20/25% deposit paid.

If your parents property has sufficient land for another property to be built on it then that is still worth a lot to a developer and investor. It may be the developer would have taken down your parents home and built two together only a bit smaller. Building land is still getting snapped up and will always be in demand. You might want to consider having some plans draw up and getting planning position at some time in the future. Planning permission will always raise the value of the property/land. I think you have quite a few options to consider and there are sure to be more.

The thing is you are starting out in life and I'm sure your mum and dad would want you to be out there doing what young people do rather than worrying yourself about them. If it makes financial sense for you to invest in their property now them consider the options but I think there are still options available if either was left on their own. Women are usually sentimentally attached to the family home than guys and it sounds that it might be quite big for one person alone. So there is still options if one parent was left alone. Sale, equity sale, you getting a mortgage, lodger etc
combination of some of these.

As someone has said a lot can change in the life of a younger person in 4 years whereas mum and dad are pretty settled in what they are going to be doing in the future.

Good luck

I will definitely get some independent advice on this. Thank you. I really need to find out how long they are tied into the interest only mortgage really - don't I? If it can be changed to pay off the capital then an equity share might be the way forward. I'm not too worried about 'inheriting' the house or anything - I just don't want to see them left destitute but I'm selfish enough that if I do end up moving back in and contributing I'd like to know I'm not throwing money down the drain when I could be paying my own mortgage.

Frizzylogic

Thrugelmir wrote: »

You need to sit down and have a frank financial discussion. As whatever the solution it needs to be a long term one.

Yes. I shall sit them down this weekend and get some answers. Thanks for your help.