What can we do?

Ellalou

Looking for any advice..
my parents (early 60’s) are both still working and have 5 years left on an interest only mortgage. They have no ‘plan’ or funds to pay off the outstanding amount of £199000, to be honest they never had when they initially took the mortgage out and I struggle to see how they actually got an interest only mortgage 13 years ago! 

The house is currently worth approx £250000. 

I am trying to see what options they have, ideally they would like to stay there and continue to pay the mortgage which they can afford. 

Is it an option to remortgage to another lender? Obviously affordability and age would come into it. 

Is it an option for me to go onto their mortgage to increase the term and try and pay off the mortgage? I currently have my own mortgage so I know it’s not as simple as that but it would at least give the mortgage company some security that I could pay in the event they can’t etc. 

I have set up a meeting with an IFA to discuss options before we speak with the current mortgage company but I just wanted to see if anyone had any advice or experience with this? 

Thank you 😊 

mortgagetakingages

Maybe buy to let.... parents gift the equity. 

MovingForwards

You / they will need a mortgage broker to see what the options are.

A buy to let for family, where they previously owned the property is going to be difficult.

They sell up and move into rented.

They sell up and buy a shared ownership property.

They could sell and buy something else.

They could remortgage to a capital repayment mortgage, potentially the term would go into retirement. Only viable if they have private pensions.

They can make overpayments to reduce the balance, but payments would be high to clear it in 5 years.

Potentially joint borrower, sole proprietor type mortgage. They are on the deeds and mortgage, you are just on the mortgage. It avoids the extra SDLT. Depends on what your outgoings are and also goes off the oldest one for the term.

If you have the cash / equity in your home, you use it to pay theirs off. Put a private mortgage on the property so if anything happens to either / both of them, your money is safe, any equity above what you lent them is theirs.

Equity release. Repays the existing mortgage. They could pay the interest on it or just let it build up until the last one dies and the house gets sold to repay it.

They must have said they had something lined up as a way to clear it, else the IO wouldn't have been approved. So what happened it?

Are you/ they employed / self-employed?
Any debts / current or previous credit issues for any of you?
Have they been paying into a pension or relying on state pension only?

Ellalou

Thank you for your advice. Both are still employed at the moment and will be working for at least the next 5 years. 

We took advice from a financial advisor who has advised the best option will be to use the next 5 years to pay as much towards the mortgage as possible. So make overpayments which will bring down the outstanding capital amount (and still paying their interest only mortgage payment).

They will never be able to pay off the full amount however if they can plough the money they can into it (they should be able to pay about £500-£600 per month in overpayments). 

Then in 5 years when their mortgage is coming to an end a lifetime mortgage may be an option as they will have a lot more equity in the house.
Or if that is not an option they would be in a better position for selling the house and would make a larger lump sum which could pay for another property to live in.

their mortgage is currently £199k, the house value is approx £250-260k at the moment. 

Hopefully by paying towards the capital, the interest will come down (reducing their interest only payments) and the house will increase in value over those 5 years.

does this sound like a good plan? My hopes are that my parents know for the next 5 years they are still working, paying towards the mortgage then hopefully they can aim to relax a little and consider retiring with a retirement / lifetime mortgage which will be a small monthly payment. This obviously means it’s less money that is left when they die or move into care but their main aim is to try and keep their house and live comfortably in 5-6 years time.

thank you, Louise 

MWT

Ellalou said:

My hopes are that my parents know for the next 5 years they are still working, paying towards the mortgage then hopefully they can aim to relax a little and consider retiring with a retirement / lifetime mortgage which will be a small monthly payment. This obviously means it’s less money that is left when they die or move into care but their main aim is to try and keep their house and live comfortably in 5-6 years time.

Do talk to someone suitably qualified to talk about the Lifetime mortgage options, because I'm not sure if the numbers are going to make sense.

Assuming the youngest of them is 68 at the point where they go for the Lifetime Mortgage, with a valuation of say £260,000 they would struggle to release more than about £100,000 or so and isn't going to be enough to clear the existing mortgage balance...

One of the prerequisites for a Lifetime Mortgage is that any existing mortgage has to be fully paid off so you can't have both...

se2020

If they manage to overpay the maximum of 600 per month that's only £36k in 5yrs time. 
Leaves them owing £163k and as a previous poster says they are not likely to be able to borrow that much on a £260k house.
You could go to some of the lifetime mortgage providers websites to see how much they might be able to get and just how much it will will cost. 

I would not bank on house prices increasing over the next 5 years with the way things currently are. Are you sure both jobs are secure at the moment as well?

yksi

Switching to a repayment mortgage might well be possible as brokers do have access to lenders which will use 70 as the retirement age. The problem is that on a 15 year mortgage their repayments are going to triple. I would guess they are probably paying around £500 per month right now and it's going to jump up to £1470-odd, and that is ASSUMING interest rates don't rise. They'll also have to pass that kind of affordability.

Your parents have been essentially just paying to rent a property that isn't theirs and I can't honestly see a nice and tidy solution, because the products designed for such a conundrum will be taking that slim equity out of the property and leave them with nothing within a few years. I think you stepping in to bankroll part of the outstanding loan is going to be the way to go. I suspect the advisor has recommended ploughing every spare penny in simply because there is no solution right now and it will be someone else's problem in five years' time. But here's the thing, many are suggesting it's going to be three years for our economy to recover, so the home may not appreciate in value at all, and you might then find that it's still unsolvable in 2025.

enthusiasticsaver

I hate to say this but I think they have left it too late to deal with this. I agree that over the next five years they should overpay or convert to repayment over the maximum term they can but unless the broker will lend past 70 the repayments will increase rapidly.  Or they should sell and settle for renting. 

[Deleted User]

If I was trying to solve this problem I would potentially look at join borrower sole owner mortgages.   This will allow you to use your income as well as any potential retirement income they have to get a much longer repayment mortgage. Maybe even a 20-25 year mortgage with certain lenders. This would keep the property in their name and treat you almost as a guarantor (bit more complex but basically the same thing).  Lender uses your income (and outgoings) to do the affordability assessment and it might mean that you can get an affordable repayment mortgage 
Even if they don't pay it all off as retirement incomes drop then you should be able to get it down low enough to do a lifetime mortgage in the future and remove you from the equation. 

IFAs do an incredible job at what they do but they are rarely mortgage specialists. Here you need a mortgage broker actually looking for a solution rather than telling you the obvious of 'try pay off as much as possible' 

MWT

@Ellalou - Deleted_User is not allowed to say the obvious, but I will, message Deleted_User directly and get some help.

It isn't going to be simple even with you on a mortgage for them as you already have your own mortgage, but the best (only?) solutions right now need a mortgage broker.

Grumpy_chap

What type of pension will your parents have?  A good mortgage broker may be able to find a product that takes this into account as secure income stream.