Taking out a mortgage for elderly relative

sieve

Hi all

We've got a bit of a situation and I'm trying to think about the best way out of it. Long story short, mother-in-law has a house worth about £50k, with an outstanding mortgage of £16k or so.

However, she is in about £15k of debt, which she has no hope of paying off, and getting deeper into trouble with it. IVA not an option as there is no surplus, and neither is bankruptcy, as she has enough equity in the house to cover her debts.

Because of the circumstances and her age (she's nearly 60), she is unable to borrow any further against her property - and probably couldn't afford the extra payments anyway. We have enquired about lifetime mortgages, but because of the value of the property, nobody is interested.

She also has a disastrous financial advisor who has basically got her paying an interest only mortgage, which will have £16k left at the end of its term in two years, and an endowment that will only cover £2k (yes - £14k short). There is no way she will be able to cover this outstanding amount, even if we were to forget about the other debt she has, so it is likely she will lose the house in a couple of years anyway.

What we would like to do is take out a second mortgage, and buy her house. We currently have £179k outstanding on a mortgage with Nationwide - our property would probably be valued around £220k. The intention would be for us to buy her house for £50k, with a 25% deposit, therefore taking £37.5k as a mortgage. This would mean:

- She gets £50k from the sale of her house
- This pays her mortgage off (~£14k after endowment)
- She then pays her ~£12k of debt off
- She then pays our £12.5k deposit and costs back

This would leave her with about £10k after solicitors fees etc, for home improvements that really need doing as well.

She would then pay us the same as her mortgage payments are now, to cover the mortgage payments we would be paying out. I should stress that we can very easily afford these repayments if something were to happen to her as well.

I am intending to approach Nationwide and ask them, but if any of you have any comments on the above plan, or if there are any other alternatives that could work and allow her to stay in her house, I would really appreciate hearing them.

Thanks very much in advance!

amnblog

It would be a second home purchase for you and you would need to be able to afford both mortgages under the Lenders affordability calculation (not your personal view).


It's a grey area for Nationwide as they will let you have a second property for a wholly dependent relative but don't like you buying from a relative who stays put in the property. It will be interesting to see what they say.

Caz3121

this could be fraught with a number of problems
many lenders will insist on vacant possession and will not lend if the current owner is staying in place
you become a landlord and would be required to fulfill the responsibilities of one
If your M-I-L receives any means tested benefits she would be treated as capital - repaying the mortgage would be looked as allowable, the other debts possibly, giving you £12,500 would not so she would be treated as if she still had it

Thrugelmir

sieve wrote: »

She would then pay us the same as her mortgage payments are now, to cover the mortgage payments we would be paying out.

Another complication. Is that this would constitute rent and therefore be subject to tax. (After making due allowance for allowable deductions). Not so easy to repay the mortgage capital as you are suggesting.

Thrugelmir

sieve wrote: »

She also has a disastrous financial advisor who has basically got her paying an interest only mortgage,

From the remainder of your post I would say that comment is somewhat unfair. As the FA is not the root cause of the financial difficulties faced.

Cheeky_Monkey

sieve wrote: »

Hi all

We've got a bit of a situation and I'm trying to think about the best way out of it. Long story short, mother-in-law has a house worth about £50k, with an outstanding mortgage of £16k or so.

However, she is in about £15k of debt, which she has no hope of paying off, and getting deeper into trouble with it. IVA not an option as there is no surplus, and neither is bankruptcy, as she has enough equity in the house to cover her debts.

Because of the circumstances and her age (she's nearly 60), she is unable to borrow any further against her property - and probably couldn't afford the extra payments anyway. We have enquired about lifetime mortgages, but because of the value of the property, nobody is interested.

Elderly :eek:

I'd hate to be your MIL

Annisele

sieve wrote: »

This would mean:

- She gets £50k from the sale of her house
- This pays her mortgage off (~£14k after endowment)
- She then pays her ~£12k of debt off
- She then pays our £12.5k deposit and costs back

This would leave her with about £10k after solicitors fees etc, for home improvements that really need doing as well.

She would then pay us the same as her mortgage payments are now, to cover the mortgage payments we would be paying out.

I think the two parts I've highlighted might cause problems.

If she's going to pay you £12.5k back, then you're not actually buying the house for £50k - you're buying it for £37.5k. Some lenders will allow a 'concessionary purchase' from family members, but so far as I know they won't allow it where the family member stays in the house. And you can't just say "what they don't know won't hurt them" without going down the mortgage fraud route.

If she covers the mortgage payments, that looks very like rent. You'd have to check whether you'd be caught by the "sale and rent back" regulations - and if you would be, they'd cause you issues.

sieve

Thanks all. I think we're going to have to have a re-think...!