Managing my mothers finances

F1001

Hi All,

Pls Need some help with my mums finances - she is just over 60 and recently divorced
We are looking for new home together in London - looking at buying something for the two of us to live in together for the next few years, and also where my family can come and visit. Also to set her up financially so she doesn't have to worry about accommodation, income, savings going forward.

She has approx. £750k in assets (cash and ISAs). She is yet to receive a pension share but hopefully when it comes through she can get an annuity of around £13,000 a year and when she turns 66 she will get her state pension too.

Option one is for her to invest £300-£350k and I put up the rest through a FTB mortgage of £300k so we can buy a decent house £600kish house in London. (I have already checked legal and IHT implications of doing this). This then leaves her with a good amount of savings so she can invest in other assets types and protect her future income, savings and potential care costs.

Other option is for her to invest £600kish into the property to buy in full cash. Then will leave her less in terms of savings. It also means that I will put my mortgage into another property (im a FTB keen to get a mortgage asap with low rates, while I have good employment and before I am priced out). So we will have 2 properties but only be living in one together and not much liquid savings in case of emergencies.

We are also thinking that if we buy a 600k house, we would rent a room out to help with any mortgage payment and also to give her company and safety if we find a good lodger so if I have to move out.
Reason for not buying something smaller, cheaper for just her is because she does not want to live alone, and we feel a house of that size and good location will allow each of us to live with safety and space while we recover and gain independence after going through a very a rough time.

What do you think is the best option - should she use all her cash to invest in a home or should she use my mortgage to allow her to have a good size of savings and maximise the use of them?
I have already looked into the legal and IHT implications on buying together with my mortgage and we are all good in that respect, but really just need advice on what is the most financially sensible thing to do for my mum and her assets.

Thanks!!!!

PeonySugar

This probably won't be a popular idea, but why don't you rent for a year? It gives you an idea of everything that you need to consider but without the commitment of a house purchase just yet. Once you've answered a few questions, then you could purchase somewhere. The interest of her savings should help to pay for the rent for a good while...

F1001

Thanks PeonySugar for replying
Yes that would have been the most practical option so give us time to think things through properly but with the London property market as it is we may rent for a year and then find we can't afford what we want as pries would have gone up by then,
Also, my mum is not in the best of health so would like to get settled somewhere quickly so she can relax in a place she calls home and not worry about moving again, rents going up, bad landlord etc.
Thinking to go and see an IFA - but not sure if they will want her to keep her funds liquid and not purchase in cash so they can invest the funds for her and earn commission fees.
Maybe too paranoid / pessimistic?

kidmugsy

Presumably you'll choose an area so that your commute to work is easy. (I presume your mother isn't hoping to work?)

The best tax deal is on property that's owner-occupied, so it's tempting for you to borrow and add your loan to some of your mother's money and buy as tenants in common. There is no need for that to be a 50:50 purchase.

I recommend that you look at The Telegraph's article on BTL housing this weekend - it thinks the prospects for the next few years are poor because of the forthcoming changes in the tax laws.

F1001

Thanks Kidmugsy -
We have found a nice house (quite large one) where it is doable for me to get into work (maybe just over an hour ish) - area is ok, nothing special but liveable with amenities and tube station close by. House is 5 beds - they converted their garage and built above it - so was thinking we could easily live together there and still have space for a lodger to help with my mortgage so I can save and one day buy a small place of my own when the time comes if my mum is ok to downsize on her own, or we move into a new place together better location. But I am conscious that property is a long term investment so means we shouldn't think about moving or selling for at least another 5 years so hopefully nothing changes in that time.


Re BTL - are the changes impacting BTL investors who buy with mortgages only? So maybe if I use my mortgage to buy the house then mum can use the funds she would have put into the rest of the house into a small flat (cash buy) and then BTL might not be so bad?
I must say the idea of managing a BTL flat with tenants, agreements, repairs etc. right now is a bit scary but maybe in a few months after finding a home I might have the ability to do it if it would make financial sense.

atush

I would forget BTL for now. I would buy with your mother as you described. Use your extra money to build up savings and pensions.

BTL is hard work, and you need skills. Plus income and capital are taxed. There are far better ways to grow your money w/o tax.

kidmugsy

F1001 wrote: »

Re BTL - are the changes impacting BTL investors who buy with mortgages only?

Mainly. And particularly people exposed to higher rate income tax. There is a (small?) extra pest even for those who don't have a mortgage - they won't be able to subtract 10% of the rent for wear-and-tear, they'll be able to claim only for actual expenditure on that front.

But the fact that most BTLers will be hit because they do have mortgages is what makes BTL uninviting for the next few years: if owners start selling up then prices will be lower than they otherwise would have been - perhaps lower in absolute terms. At the very least I'd treat this as an invitation to move very slowly on the plan for a BTL: be wary.

It's true I'm a perennial sceptic about BTL: income tax, CGT, voids, expenses, bad tenants ..... It all seems to me to be a punt on the belief that capital values will increase without end, so that gains are guaranteed. People are entering a business where they have no advantage - no trade skills, no legal skills, no relevant professional skills, no identified source of good tenants, perhaps even no experience of the location ... Plus I can remember the last housing crash wiping out a member of my family.

In your shoes I'd consider two alternatives. (i) Do buy a flat (say) suitable for your own long-term use, and let it until one of you wants to move in. That lessens the gamble because you'd expect to own it indefinitely. Even then I'd say "no hurry". (ii) Spend more on your planned shared house in a way that makes life better. Buy in a better area, with a shorter commute. The lodger idea is good: a friend of ours has had a lodger for ages - it's company and well as income. But, it has proved to share one disadvantage with BTL: she has recently had a bad lodger and that has put her off the idea of continuing.

atush

Have you ever had a lodger? Would you be comfortable with one?

I'd consider a smaller house instead perhaps.

F1001

Thanks kidmugsy and atush!


As an FTB I definitely don't have the necessary skills you have described for BTL so the idea of buying something additional with the intention of moving into is better one but then I still have to manage it until then I guess and am them restricted to location being close to my mum. So that would mean buy a small 3 bed or something for us for now (prices in the areas we are looking at are around £550-590k for good semi-detached 2.5 beds) and then a 2-bed flat in that same area would be around £400k.


So £1mil for 2 properties vs £610-615k for one large one?
Am I looking at this in the right way financially? Mine and my mums lives should be separate in case I get married etc. so is it wrong to consider the sum of the assets and finances together?


Kidmugsy - what was the bad lodger experience that your friend had?
I have lived with flatmates before so the idea of a lodger is not so scary for me because I am looking at it as a flatshare perspective but my mum has never had one before (well, no one that wasn't family) so may feel a bit funny at first. May be awkward enforcing rules in the house but with the right lodger it could be very nice.


Thanks!

greenglide

prices in the areas we are looking at are around £550-590k for good semi-detached 2.5 beds

Ever thought of looking at somewhere sensible sensible to live?

Lots of houses in other areas of the country much more sensibly priced. We have a three bedroom detached bungalow in a "nice" area which at todays prices is probably worth around £200k.

£500k or more would seriously get you a mansion.