Suggestions for 65 yr old with £60k mortgage, £58k assets, pension paid in lump sum

Arrain19

My mother is 65, single and lives in the north of England. She has mental health issues and is currently unwilling to move from her home, which was our family home prior to my parents' divorce. My hope for this post is that I can get some advice on presenting a sensible plan for her future.

The property is estimated to be worth £200,000 in good condition, however the property is in a state of disrepair and requires significant updating, e.g. new kitchen, new bathroom, new electrical wiring, replastering throughout due to damp, new windows etc. I have a friend who is a builder and property developer, who estimated he would spend in the region of £50,000 - £70,000 on updating the property.

I'd therefore estimate the property to be worth about £150,000 in its current condition, taking into account the repairs and updating required.

My mother has the following major liabilities:
- Outstanding mortgage of £60,000 which is currently interest-only, as she cannot afford to make repayments to the capital; 5 years remaining on the mortgage term.

She does not work (has not worked for 13 years now) and is unlikely to get a job due to mental health issues and alcohol dependence. She receives disability allowance, and has the following assets:
- £8,000 remaining from a workplace pension lump sum she took
- £50,000 inheritance from my grandmother following her death

My mother wants to use the full £58,000 to pay off the majority of the mortgage, however given the house is in such a state of disrepair, I worry that this will leave her with an unsafe and unhygienic property that will only get worse, without her having the funds to maintain the property, and no funds left for her retirement.

Any suggestions? I thought she'd be better off downsizing?

TadleyBaggie

Duplicate thread: https://forums.moneysavingexpert.com/discussion/5855192/suggestions-for-65-yr-old-with-60k-mortgage-58k-assets-pension-paid-in-lump-sum

Arrain19

TadleyBaggie wrote: »

Duplicate thread

Apologies, I read the forum rules before posting and didn't see anything about not posting in more than one forum; I thought it would make sense to post in Mortgages & Endowments and also in Retirement Planning as I wasn't sure which one it fell into. Thanks for linking to the other thread.

Dox

Forgive me for making the point, but it doesn't sound as if your mother is going to listen to you whether the suggestions come direct from you, or are relayed from this site. It sounds as if you already have an extremely sensible plan but I suspect the first priority is to find someone to whom she might listen - or is that wishful thinking?

atush

If you can get her to agree, use the money to upgrade the house. Keeping back the *k for emergencies. This way she has a better house to live in, and will be easier tos ell for downsizing later.

If she wont, have her pay off the mtg to lower her outgoings. but reallyt he house will continue to deteriorate if she doenst at least do some work.

So, halfway- fix the house up a bit, and pay off the mtg a bit. Address the causes of the damp (such as roof/guttering) first before doing any inside remedial work. Going on to electrical and maybe windows if they are leaking or if not redo one bathroom. While new kitchens and bathrooms do make a house nicer/more saleable, you need to stop the deterioration before addressing cosmetic issues.

AnotherJoe

I think you've presented a sensible plan for the future, downsizing, as said the issue is how do you get her to listen?

Arrain19

Dox wrote: »

Forgive me for making the point, but it doesn't sound as if your mother is going to listen to you whether the suggestions come direct from you, or are relayed from this site. It sounds as if you already have an extremely sensible plan but I suspect the first priority is to find someone to whom she might listen - or is that wishful thinking?

I think she will listen to a suggestion that doesn't involve her having to move house. I think the options are:

A) Use the £58k to pay off the mortgage as much as possible, leaving her cash poor but mortgage free
Use the £58k to renovate the property, making it a nice place to live but £60k outstanding on the mortgage and no plan on how to repay it
C) Use the £58k to partially pay off the mortgage, and use some funds to improve the property / perform repairs (not sure what proportion)
D) Equity release in some form - home reversion or lifetime mortgage?
E) Something else not considered?
F) Spend nothing on the property and convince her to downsize.

I think Option B and Option F is a non starter as I don't think she'll ever agree to sell. I wasn't aware of Option D before today, so that's been helpful to find out, but unsure if it's a good idea?

Arrain19

AnotherJoe wrote: »

I think you've presented a sensible plan for the future, downsizing, as said the issue is how do you get her to listen?

Yes, I think that's the best option but likely to be a non-starter, so I guess it's which of the other options is likely to be the next best?

sleepless_saver

Have you checked the implications of the inheritance and the pension lump sum for any income related benefits she may be getting? E.g pension credit and council tax support.

Dox

Given her situation (as you've described it), why does she want to be mortgage free? Doing that would leave her in a house in poor and deteriorating condition with limited capital/income to live on.

Option E - a variant on Option D if you have some cash - you lend her money but make it a formal loan with a charge on the house if it's a large amount, or if it's a more modest amount, document it in writing (a simple DIY note will suffice, setting out the amount, when the loan was made and when it is repayable - say the earlier of your mother's death/the property being sold).

Arrain19

Dox wrote: »

Given her situation (as you've described it), why does she want to be mortgage free? Doing that would leave her in a house in poor and deteriorating condition with limited capital/income to live on.

Option E - a variant on Option D if you have some cash - you lend her money but make it a formal loan with a charge on the house if it's a large amount, or if it's a more modest amount, document it in writing (a simple DIY note will suffice, setting out the amount, when the loan was made and when it is repayable - say the earlier of your mother's death/the property being sold).

Her thinking is that she has to pay off the mortgage in the next 5 years or she'll lose the house, and that for her is the worst possible outcome. I agree though, I'm not convinced being (nearly) mortgage free (likely to be around £2,000 short) with very little money to live on, in a house in dire need of repairs, is a good situation to be in - effectively she'll be asset rich and cash poor (I assume she'll have about £150k tied up in the house), with a poor quality of life.

I don't really have the funds to lend her money, unfortunately, as my partner and I have been saving for a house deposit for a few years now and have just got to the point where we can put down a 10% deposit on a property. I've also been advised by a lot of friends and family not to get into lending or giving money to my mum, as it probably won't work out well.

I wasn't aware of equity release before today and wonder if that might be a better solution?