Paying off parents mortgage

Sruss999

Hello,

Our parents are in their 80s and my father has dementia so myself and sister are now power of attorney for both parents.

We have just discovered that they still have an interest only mortgage (with 23 years to run!) For £7500.

We were thinking of paying the mortgage off for them (and buying the house off them) but just wondered the legal implications if we did have to consider a home for my father. I realise if they simply transferred the house over to us (if they owned it) it could still be taken into consideration within 7 years, but wondered as it is technically not their home if this would be different?

Thanks for any advice

Mojisola

Sruss999 wrote: »

We have just discovered that they still have an interest only mortgage (with 23 years to run!) For £7500.

We were thinking of paying the mortgage off for them (and buying the house off them) but just wondered the legal implications if we did have to consider a home for my father.

If you buy the house for the market price, your parents will have plenty of money to pay for a care home.

If they own the house that your mother will continue to live in, its value won't be counted in a financial assessment.

There's lots of information about how care is paid for on the AgeUK website.

Jackieboy

If your parents are short of money (you don't say) why not just make the mortgage payments for them - that would be the simplest thing.

AnotherJoe

Sruss999 wrote: »

Hello,

Our parents are in their 80s and my father has dementia so myself and sister are now power of attorney for both parents.

We have just discovered that they still have an interest only mortgage (with 23 years to run!) For £7500.

We were thinking of paying the mortgage off for them (and buying the house off them) but just wondered the legal implications if we did have to consider a home for my father. I realise if they simply transferred the house over to us (if they owned it) it could still be taken into consideration within 7 years, but wondered as it is technically not their home if this would be different?

Thanks for any advice

The two are independent.

Pay off mortgage.
Buy House.

Why are you conflating them?

Why not just pay off the £7500 so they own it. That I understand.

Buying it would likely be a spectacularly bad move financially, what is your reasoning there?

boliston

The repayments can't be much for such a small mortgage - they own it regardless of whether the 7500 is paid off so I would just make sure that the repayments are paid.

I don't think I would want the responsibility of owning a house with a sitting tenant that I could not sell.

jamesd

Good to read about the mortgage. Far too many people don't realise that the ideal time to repay a mortgage is likely to be out of your estate, assuming a reasonable interest rate. This maximises the assets while living though not as well as equity release.

It's too late to get the home out of consideration by selling. His need for care is clearly foreseeable and the moment that happened it started to count unless excluded for some other reason. Like her living there as owner.

You have POA for her. Does she also have a medical condition that makes care for her foreseeable? If so, the house will be taken into consideration for her and sold soon after she moves into care. If she does not have such a condition at the time of her death then there will be only the mortgage to deal with.

The biggest risks here are:

1. Those with POA breaching their legal requirement to put the interest of the individuals first and instead maximising inheritance value. Risk, doesn't mean that you would.
2. Her also needing care. If she doesn't the whole house value may survive.

But there's much more to it than this. Many people will have the resources to pay for care but we don't know their incomes or house value so we can't work out whether it's affordable or not. With more than 10% a year available from some P2P investing some people might be shocked at just how much can be affordable. If you were to buy their home worth say £600k from them that's potentially £60k a year of extra income, enough to pay market rent and quite possibly typical care costs. And paying market rent keeps it out of inheritance tax.

xylophone

You and your sister have PoA for your parents, one of whom has dementia.

You are legally bound to act in their best interests.

If you bought the house from them, you would have to pay market value.

Half the money at least would belong to your father and would be taken into account for the means test for care.

As your father now has dementia, it seems to me that he cannot authorise the gift of his home and neither can you as PoA - this would be the case even if there were not the conflict of interest arising from your being PoA.

Apart from that, such a gift would be regarded as deprivation of assets.

You could make your parents an interest free loan (written formal agreement) to enable them to pay off the mortgage - this would be repayable to from the sale of the property the estate of the last to die.

If your father has to go into care and your mother remains in the house, it cannot be taken into account for care fees.



More here

http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS38_Treatment_of_property_in_the_means-test_for_permanent_care_home_provision_fcs.pdf?dtrk=true

https://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true

Sruss999

Thanks so much for your response. Thats made things really clear, very much appreciated.

Kynthia

Acting uninformed could lead you to make your parents' situation worse rather than better. Age UK should have some information relevant to your situation.

Unless your mother also has POA for your father and own the property as joint tenants I don't know what the situation is about her ability to sell the property. You and your sister acting as POA would have to show that selling was in your father's best interests to do it on his behalf and I'm not sure you could. By selling you could be taking a property that was protected with your mum living there to money, of which half will belong to your father and can be used for his care fees.

Even if your father could give away his property it could be classed as deprivation of assets indefinitely, if it meets the council's definition for it. The 7 years limit is for inheritance tax on gifts only.

Paying off the mortgage is a choice. If the interest rate is very low and the monthly repayments very affordable, then as the term is long enough that it's not going to be repaid in your parent's lifetime then is it worth repaying it? The balance can be repaid from their estate. If you can afford to give them a few thousand is there something else they need or would rather spend the money on?