Paying off parents' mortgage in exchange for a share in their property

Torfaen5

Hi, I hope someone may be able to help me with this please. I searched the forum but couldn't see a situation quite the same,  but please share a link if I've missed something relevant

As briefly as I can explain it, the situation relates to my parents' home. My middle-aged sister still lives at home and between her and my parents, they remortgaged the property around 6 years ago. My sister received half to pay off existing debts and my parents received the remainder to supplement pensions. My sister has been paying the full mortgage repayments on behalf of her and my parents, meaning that she has now repaid her share including her interest.

My sister now plans to move out due to work relocation, which we all fully support, but an amount remains on the mortgage (approx 20% of the property value) and my sister will be unable to continue repayments (she has repaid her part of the debt anyway). My parents are not in a position to make repayments (just a fact, no judgement please).

I am in a fortunate position to be able to pay off the remaining mortgage with savings, and I have suggested I take a share of the house in exchange. I won't be living there though and have a joint mortgage with my spouse on our own property.

So I was just looking for some advice on how to arrange this please? I've looked online and think I need a deed of trust to set out the shared ownership. But are there any other legal or financial considerations? I know I will need a solicitor to draw up the deed of trust, but is this a standard conveyancing one or another specialism? Any advice would be really appreciated please!

xylophone

As things stand, is the property registered as  tenants in common with your parents and sister each having a 1/3 beneficial interest?
Might it be better just to lend them the money to pay off the mortgage and you take a first charge on the property to secure the loan?
You might agree (through a formal agreement drawn up by your solicitor) on a  percentage of the sale price to be paid to you when the property is sold (together with the repayment of the capital).
Your solicitor should be able to explain tax implications of the arrangement.

Torfaen5

Thanks, this is really useful. Can I just ask why it would be better to give them the money to repay the mortgage? Sorry if I'm missing something obvious but never done anything like this before! I think we'd need to take my sister off the property registration as she would no longer have a stake? Thanks so much for your response!

[Deleted User]

How much is a 20% share worth? More than £40k if so you'll be paying the higher rate of SDLT on the purchase. You're also opening yourself up to CGT further down the line as well are tying your savings up in a very illiquid investment for god knows how long. 

Your parents could look into a lifetime mortgage or downsizing as alternative solutions. 

AdrianC

Torfaen5 said:

As briefly as I can explain it, the situation relates to my parents' home. My middle-aged sister still lives at home and between her and my parents, they remortgaged the property around 6 years ago.
...
an amount remains on the mortgage (approx 20% of the property value)...
My parents are not in a position to make repayments (just a fact, no judgement please).

I am in a fortunate position to be able to pay off the remaining mortgage with savings, and I have suggested I take a share of the house in exchange. I won't be living there though and have a joint mortgage with my spouse on our own property.

So I was just looking for some advice on how to arrange this please? I've looked online and think I need a deed of trust to set out the shared ownership. But are there any other legal or financial considerations? I know I will need a solicitor to draw up the deed of trust, but is this a standard conveyancing one or another specialism? Any advice would be really appreciated please!

Your best bet would be to simply loan them the money, in return for a charge against 20% of the value of the property. They remain 100% owners, so you don't have any issues around multiple property ownership. The value of that proportion of the property is not part of their estate when they die or need residential care.

They can write into their wills whatever they wish around the distribution of their assets, to take your sister's substantial gift into account.

diggingdude

Torfaen5 said:

Thanks, this is really useful. Can I just ask why it would be better to give them the money to repay the mortgage? Sorry if I'm missing something obvious but never done anything like this before! I think we'd need to take my sister off the property registration as she would no longer have a stake? Thanks so much for your response!

Are you sure about that? She will likely have lost her first time buyer incentives by being an owner of this property (if she hadn't owned before).  As the remortgage was to assist parents as well as herself, if I was sister I would either want some compensation or I would be remaining as an owner. Has she paid just her share of what borrowed or 1p more?  Also it sounds as though the amount you would be paying off would be money owed by parents so its them you would be assisting, not sister in any way

Torfaen5

Lover_of_Lycra said:

How much is a 20% share worth? More than £40k if so you'll be paying the higher rate of SDLT on the purchase. You're also opening yourself up to CGT further down the line as well are tying your savings up in a very illiquid investment for god knows how long. 

Your parents could look into a lifetime mortgage or downsizing as alternative solutions. 

Thanks for your reply. I absolutely want them to downsize as a long-term resolution, but they're reluctant and in poor health. The mortgage due is now £32k. I just had a look at SDLT rates and it says that as I own another property I'd have to pay 3% regardless of value? Sounds like the charge against property would be better if I can set a % share of property. 

Torfaen5

AdrianC said:

Torfaen5 said:

As briefly as I can explain it, the situation relates to my parents' home. My middle-aged sister still lives at home and between her and my parents, they remortgaged the property around 6 years ago.
...
an amount remains on the mortgage (approx 20% of the property value)...
My parents are not in a position to make repayments (just a fact, no judgement please).

I am in a fortunate position to be able to pay off the remaining mortgage with savings, and I have suggested I take a share of the house in exchange. I won't be living there though and have a joint mortgage with my spouse on our own property.

So I was just looking for some advice on how to arrange this please? I've looked online and think I need a deed of trust to set out the shared ownership. But are there any other legal or financial considerations? I know I will need a solicitor to draw up the deed of trust, but is this a standard conveyancing one or another specialism? Any advice would be really appreciated please!

Your best bet would be to simply loan them the money, in return for a charge against 20% of the value of the property. They remain 100% owners, so you don't have any issues around multiple property ownership. The value of that proportion of the property is not part of their estate when they die or need residential care.

They can write into their wills whatever they wish around the distribution of their assets, to take your sister's substantial gift into account.

Thanks for your response. This sounds like the better option, so will look into this

Torfaen5

diggingdude said:

Torfaen5 said:

Thanks, this is really useful. Can I just ask why it would be better to give them the money to repay the mortgage? Sorry if I'm missing something obvious but never done anything like this before! I think we'd need to take my sister off the property registration as she would no longer have a stake? Thanks so much for your response!

Are you sure about that? She will likely have lost her first time buyer incentives by being an owner of this property (if she hadn't owned before).  As the remortgage was to assist parents as well as herself, if I was sister I would either want some compensation or I would be remaining as an owner. Has she paid just her share of what borrowed or 1p more?  Also it sounds as though the amount you would be paying off would be money owed by parents so its them you would be assisting, not sister in any way

Thanks for your response. I need to find out how the deeds were altered when the mortgage was taken out. My sister has just repaid the value of her debt, so hasn't contributed more into the property. I guess it doesn't seem fair to me or my other siblings if she just gets a third ownership of the house for free? Don't mean to sound mercenary as I love my sister, but want things to be fair. I'll look into this.

xylophone

I guess it doesn't seem fair to me or my other siblings if she just gets a third ownership of the house for free?

The property belonged to your parents. Your sister has always lived with them, assisted them and presumably paid her fair share of outgoings.

When the remortgage loan was taken out, your parents benefited as well as your sister. Your sister has been paying the mortgage by herself.

If she does now own a proportion of the property, that seems fair enough to me.

You can lend the money to pay off the mortgage and take a charge on the property.

Interest can roll up until the property is sold (income tax implications) or you can choose to take a proportion of the value of the house (CGT implications)- obviously you would discuss this with your solicitor when making formal legal arrangements.

Assuming that the property is currently owned as tenants-in-common (is it?), your parents and sister can leave their individual interests in their wills to whomsoever they choose.

Torfaen5

xylophone said:

I guess it doesn't seem fair to me or my other siblings if she just gets a third ownership of the house for free?

The property belonged to your parents. Your sister has always lived with them, assisted them and presumably paid her fair share of outgoings.

When the remortgage loan was taken out, your parents benefited as well as your sister. Your sister has been paying the mortgage by herself.

If she does now own a proportion of the property, that seems fair enough to me.

You can lend the money to pay off the mortgage and take a charge on the property.

Interest can roll up until the property is sold (income tax implications) or you can choose to take a proportion of the value of the house (CGT implications)- obviously you would discuss this with your solicitor when making formal legal arrangements.

Assuming that the property is currently owned as tenants-in-common (is it?), your parents and sister can leave their individual interests in their wills to whomsoever they choose.

Thanks for your response I appreciate your view on this although, it's not quite as black and white as my sister solely supporting my parents. My parents also used their pensions and incomes to help my sister with a lot of her expenses and debt - paying the running costs for the car, groceries and looked after her when she was unwell.  This meant that I also needed to help them out financially at these times  - helping to clear debt and paying for white goods , repairs etc
 I get on well with my sister and she fully acknowledges the help I lent all 3 of them so I don't think there is any expectation from her that she should have a much greater share of the property.
The agreement to take on the mortgage was as much a solution to help my sister clear her debt as to help my parents who possibly could have just downsized instead some time ago and my sister hasn't wanted to or been in a financial position to move out until recently.
Also it is not the case that my sister has been some live in carer - quite the opposite with my parents doing the cooking cleaning and managing other things for my sister like running the car that my sister has had a lot of use from. My mum has only become very unwell in recent months but my Dad still continues to do most of the cooking, cleaning and household management. Hope this gives a little bit more context