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Relocating Parents - buying a house for them?

My parents live about 200 miles away from me and currently live in a house that has an interest only mortgage. They will need to pay off the balance in June next year and have no way of paying off the balance. I have suggested that they move down south near me and I try and help them by either buying a house for them or helping them buy the house. This will allow them to see more of the grand children and also means that at some point in the future if their health starts to fail them then I will be local rather than a 4/5 hour car journey away. I really am not sure what the best way to deal with this is. Here are the details...

1. They can sell their property for about 110k and have about 55k left after paying for everything. They are happy for us to have as much of this money as needed.

2. Me and the wife have a mortgage on our property with about 100k equity (property value about 350k) We have no savings and some debts but nothing major. We do not plan on moving for the foreseeable future.

3. Both me and the wife have good jobs and earn a decent wage and could afford for higher mortgage payments.

4. My parents are both of retirement age however my dad still works on a part time basis and may continue to do so when he moves down here for a few years ( there is a position that he can fill available now)

5. House prices for the surrounding area where I live would mean we could buy a suitable place for them around 140k.

6. My sister and brother in law would be more than happy to be involved in the purchase of another house to allow my parents to live in if this helped the situation. We are very close to them and see no situation where this would not be the case.

I am trying to work out if it is best for me to buy the house and get them to pay me rent (Which I guess if I was to get a second mortgage would then need to be a BTL mortgage?)
Should I release the equity in my house, get my sister in law to do the same and buy a house 50/50 ownership outright with no mortgage and rent it to my parents. Or should I get them to give me the cash they will have, release equity in my house and then buy it on my own however at a much greater financial risk to myself.Or if anyone has a better idea I would be grateful to hear it.

Thanks in advance
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Comments

  • agrinnall
    agrinnall Posts: 23,344 Forumite
    10,000 Posts Combo Breaker
    Why do they have no means to pay off the mortgage? If this was a mortgage taken out 20+ years ago in the days of endowment mortgages what has happened to the repayment vehicle that would have been taken out at the same time?
  • teddysmum
    teddysmum Posts: 9,521 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    You have listed six options,but they may not actually be possible. eg Could you and/or your sister and partner get a second mortgage, as you are already committed to your own ? Are you able to take the responsibilities of being a landlord ? Co-buying with parents could have implications should they need care. Would a lender allow older people to be on a mortgage ?
  • xylophone
    xylophone Posts: 45,642 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    http://www.ibs.co.uk/mortgages/for/over-60s

    http://home.bt.com/lifestyle/money/mortgages-bills/the-lenders-offering-longer-mortgages-to-older-people-11364059929191

    Your parents would have a deposit of 33% of the value of a house in your area, pension income and employment income.

    It might be possible for them to obtain a mortgage, particularly if you and your sister could assist in some way - perhaps you and your parents could take out a mortgage together and be tenants -in - common of the property.
  • pleasedelete
    pleasedelete Posts: 2,291 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    You want them to move from a position where they own a house to one where they rent? What would happen if you and or your sister split up from their partners? The house would be an asset of your marriage, could be sold and your parents would be homeless.

    What if you fall out? With them or with your sister? They could be homeless.

    How will they afford rent if they cant afford a repayment mortgage at the moment?

    What about deprivation of assets?

    What if you move , they are then stuck in that area.

    They need £95,000 mortgage plus moving fees and stamp duty (you will pay more stamp duty as a 2nd property)

    Does your wife want to subsidise your parents? Can you afford your mortgage and additional on just 1 job (are you redundancy resilient)

    Unless you can afford to do this in cash as a gift then it is challenging.
    June challenge £100 a day £3161.63 plus £350 vouchers plus £108.37 food/shopping saving

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  • booksurr
    booksurr Posts: 3,700 Forumite
    edited 8 June 2016 at 5:24PM
    I cannot see any reason why you want to own the new property the parents would live in
    • exposes you to additional rate stamp duty
    • exposes you to Capital Gains Tax (you would get the property back tax free if they own it and you simply inherit it on their deaths)
    • exposes them to Pre Owned Asset Tax, unless they pay you full market rent for the property
    • means you will become a landlord with all the normal statutory responsibility that implies
    • if the mortgage is taken against their new house (rather than you extending your own current mortgage) it will be a Regulated BLT mortgage because the tenants are direct family. That severely limits the number of available lenders who offer such a loan (and may be a higher rate)
    • depending on your own income levels, the changes to tax treatment of rental income means you may end up having to pay income tax on the rent they pay you because the mortgage interest is no longer an allowable expense (and if you do a repayment mortgage then the capital element certainly isn't even now before the changes)

    much simpler if you give them the money (if your lender allows you to remortgage on that basis of course) and they buy the property 100% in their own names using money from you plus whatever they get from selling their current place.

    or do you actually need to get rental income? If so why take it from your parents, just become a BTL LL like others do with "normal" tenants.
  • Keep_pedalling
    Keep_pedalling Posts: 21,015 Forumite
    Tenth Anniversary 10,000 Posts Name Dropper Photogenic
    Now way should anyone give up the one major asset they have. It seems they have no choice but to sell their existing property, and with just a year to run on the mortgage they should be marketing the house now, but they should not rush into any complex financial arrangement because of their current situation.

    In the first instance perhaps renting somewhere near you would be the best option, at least that way they could move back if things did not work out.
  • tlc678910
    tlc678910 Posts: 983 Forumite
    Part of the Furniture 500 Posts Combo Breaker
    Any chance your parents could use their funds to add an annexe to your property or you could move to somewhere with an annexe for them. They could put a charge against your property to protect their equity.

    Tlc
  • I was hoping this would be simple but seems not!

    The problem I have had is getting my parents to try and realise the position that they are in. It has taken me 4 years to get them to tell me where they are at with things and now it all seems a bit rushed.
    I had no idea they were on an interest only mortgage with no way of paying it off at the end of the term. If I had known I could have helped them plan for this situation.
    I have spoken to my current mortgage provider and the bank where I hold my current account and they will allow me to borrow the money and gift it to them to buy a new property or pay off the existing mortgage. I can only do this If I am not expecting to get the money back. This would allow them to either stay in the property that they are in or possibly give us the option of them getting a property down here.

    To answer a few of the other questions..

    My wife is happy for us to help out my parents as long as there is not a major financial risk to us.
    We have no plans to move from the area we live as my wifes family are local, kids are at school and we live in an area we really like. Both of us work locally and love the jobs we do. We are both in jobs that we have been in for a number of years and with Major companies.

    My parents are happy to move near us and would have no reason to move back to where they live now. They moved there originally to be close to my mums mum about 10 years ago and she is no longer with us. The area they live is much worse than where they were before and they will be quite happy to leave as there is little there to keep them there.

    We would be happy to give them some money to help them out in the short term but would not want to "lose" this money. We have thought if we give them they money to buy a place what would happen if they needed expensive care in their old age? It sounds crude but we would be happy for them to have the money and if we knew we would inherit the house when they die thus getting the money back? we cannot risk giving them the money and not getting it back.

    From the sounds of it if we buy the house for them to rent off us it would get quite complicated and would involve us having to set up as a landlord? would this still be the case if they didn't pay rent and just lived there? Is there a way we could raise the money without a guarantee of rent coming in? Would a bank lend us the money if we had no "income" from it? I was wondering if my parents gave us the lump sum and we borrowed the rest would a bank allow us to buy a house with a mortgage.

    I had no intention of becoming a Landlord before I found out the situation my parents were in. I want to do whatever I can to help them but also make sure My Family are secure.

    Thank you all for your responses.
  • xylophone
    xylophone Posts: 45,642 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Your parents sell up - they have £50,000.

    You and your sister can borrow around £100,000 against your own properties?

    You and she can lend this cash to your parents (a properly drawn up legal agreement) and take a charge on the property they buy.

    They can pay you interest on the loan (will need to be declared) or you let it roll up.

    Should the house have to be sold to fund care, you and your sister would have to be repaid your capital and any rolled up interest.

    You would see a solicitor to make sure that all was done correctly.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    10,000 Posts Fifth Anniversary Name Dropper Photogenic
    I was going to reply along the lines above but xylophone has nailed it more succinctly and clearer that I would,so simply follow their recommendations.
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