Supporting parent in mortgage application / property acquisition.

JxB

Long time reader, first time poster.... looking for some advice please


TL;DR - how to co-sign a mortgage for a parent in a way thats fair during life and you recover your funds after they pass away?


Situation: Mum is single, turning 55 in September. She's currently making £12,000 per yer, this is expected to rise to £18,000 next year. Good credit rating.



In September she gains access to her share of Dad's pension, currently valued at circa £116k.
Due to not being in employment until a few years ago, she's only gonna get 2/3rdsish of state pension assuming she works enough for a stamp each year until 67 (I'll make sure she does)



She's not great with money, and wants to own property. Her initial plan was to cash it all in and buy a small place in the North outright. I have thankfully talked her out of this, and convinced her that if she really wants to buy a place, to take the neccessary deposit out and take a mortgage.



However, due to the low income and max term of 12 years (I'm assuming she won't initially be able to get a mortgage to run past state retirement) she's going to run into affordability issues on the monthly repayments, so will then need a larger deposit.


I'm keen to help her out. I'm 32, no kids and no plans for any and work as a self-employed contracor in banking (but nothing to do with mortgages, of which I have no experience). I have a pretty good income (equivalent to about 70k permanent) and 3 years of accounts to satisfy any mortgage lender. My credit rating is low following some pretty terrible financial management in the past, but after 30 April the last of the big defaults drops off my report and I'll just have ove for £130 from 2016 left.



I'm pretty much at the point where I just shovel money into index tracker funds. I should probably build the FU money pot a little but there's no issue with my finances. I'm happy to help her with the deposit and/or payments, and become party to a mortgage if neccessary, on some kind of deal whereby I recover my funds waaaaaay down the line after she's passed (we're both agreed that this would need to be protected by some kind of legal contract between us - she wants to feel like its her place and not like shes half-renting from me / is vulnerable to being kicked out if I decide to start a family or whatever and need the funds - not that this would happen I dont have those kind of plans).


But I'm struggling to find out whether such a mortgage product exists/what the best way of achieving this would be? There's also some (amicable) disagreement over how you split the cost of monthly mortgage payments (I'm saying as mum would be the sole occupant in the property, she should be expected to pick up the bulk of the mortgage repayments - her view is that as I'll likely recover the value later it should be 50/50).


It is likely mum will have spent the bulk of her pension money dueing her retirement, and the property is likely to be the only inheritance, probably with me owning my share from my investment now and the remainder split equally between me and my 3 brothers.


Has anyone any experience of doing this / any advice over the best way for me to support mum in her goals of owning a decent property (circa 100-150k) in a way that she'll feel like its 'her own', and ideas on the fairest way to arrange things?

Cakeguts

Forget the inheritance plan for if your mum needs to go into a care home. If she goes into a care home the chances are that she will be expected to pay for her care from the proceeds of the sale of her home so it you want to get back what you put in you will need to be able tell what percentage of the house you own.

The biggest problem you have is that you say that your mum is not good with money so what is to stop her from not paying any mortgage and being repossessed?

Where does she live at the moment? Unless she is living in a council house or housing association house which means that it is not a good idea to buy anything her best idea is to buy a house outright where she can afford it which gets round the problem of not being good with money and mortgages.

JxB

Should clarify, when I say 'not good with money', I mean not good at sorting out the technicalities of mortgages, making detailed retirement plans. She's fine with paying everything on time etc.

I presume if I'm on the mortgage and/or title, my ownership / stake is protected (although yes I realise there are issues with care later in life destroying any inheritance).

Cakeguts

Where does she live at the moment? Buying will make sense if she is living in private rented accommodation but it won't make sense if she lives in a council or housing association property. The point about housing association and council properties is that she can live there for the rest of her life without any worry so if she has a social housing tenancy she is advised not to give that up.

JxB

Oh, sorry forgot to answer that part.

She's been living with her elderly parents as a caregiver for a few years, in a house her parents own.

Her father passed away last year, and he was the care-intensive one. Her brother has now moved in and is taking over responsibility for their mum, so she wants to move out on her own again. Her parents house has had equity-releases against it, and has to be sold when her parents pass away. Anticipated inheritance at some point (realisticallly not too far away) of £10-20k. I've just kind of discounted this as the plan I've set for her doesnt leave her much savings outside the pension, so as and when this come in she can use it as a cash reserve.

Pixie5740

I think there are a small number of mortgage lenders who would allow your mum to borrow part of the deposit from you and then you would have a second charge (mortgage lender would have the first charge) against the property. This would protect your money if your mother does need care further down the line.

Given that not every lender does this it would be wise to engage a mortgage broker rather than attempt to DIY.

AnotherJoe

I've done something similar though with daughter not mother.

My solution along the lines of Pixies post above, was to provide a deposit, protected by a second charge and also a loan agreement

The agreement specifies that no repayments are due until the house is sold at which point my deposit is returned (unless another house is purchased in which case its rolled forward) and uprated in line with the house price rise (or decline). Eg if house rose 50% I get back deposit plus 50% .

The two mortgage lenders that have been Ok with this so far have been Santander (original mortgage) and nationwide (remortgage). Reason for the uprating clause is to make it fair to siblings when I die so they get fair share. ..in your case more key is to protect against potential care costs you don't want council swooping in and taking your money or the increase in value of the house without regard to your deposit being worth more . Also sucha clause may protect against creditors eg say you went bankrupt or separating spouse wanted to claim against all your assets this might help..

JxB

Thanks AnotherJoe, looks like that might be the solution.

Do you know how the mortgage lenders assessed the second charge? Its looking like mum's going to put up 20-30k, I'll put up 20-30k and then she'll have a sole mortgage for around 70k. But this only works if the lender agrees to treat the second charge loan essentially the same as a cash deposit on the affordability assessment. Did you run into any issues on this?

Also, with the second charge does this mean you have to get involved every time there is a re-mortgage / product switch?

And finally, would mum be blocked from taking out a first charge mortgage that effectively kills my 2nd charge... just dont want to get down the road and find she's accidentally had a first charge taken for the entire value of the house and I have nil recoverable on sale


Thanks for the tips guys!

xylophone

Due to not being in employment until a few years ago, she's only gonna get 2/3rdsish of state pension assuming she works enough for a stamp each year until 67 (I'll make sure she does)

Has your mother actually obtained a new state pension statement?

https://www.gov.uk/check-state-pension

And see https://www.royallondon.com/Global/documents/GoodWithYourMoney/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf

xylophone

And also https://www.gov.uk/new-state-pension/how-its-calculated

And is your mother contributing to a workplace pension?

AnotherJoe

JxB wrote: »

Thanks AnotherJoe, looks like that might be the solution.

Do you know how the mortgage lenders assessed the second charge? Its looking like mum's going to put up 20-30k, I'll put up 20-30k and then she'll have a sole mortgage for around 70k. But this only works if the lender agrees to treat the second charge loan essentially the same as a cash deposit on the affordability assessment. Did you run into any issues on this?

No but we used a lender who didn't have a problem. A broker sorted out who those were.

Also, with the second charge does this mean you have to get involved every time there is a re-mortgage / product switch?

Yep. I had to sign a document saying i was happy for the remortgage to go ahead when she remortgaged.

And finally, would mum be blocked from taking out a first charge mortgage that effectively kills my 2nd charge... just dont want to get down the road and find she's accidentally had a first charge taken for the entire value of the house and I have nil recoverable on sale

Thanks for the tips guys!

Do you mean if she did, say, equity release? AFAIK the second charge prevents that. See my comment above about having to sign a doc.