Short term equity release/bridging loan type options for pensioners - do such things exist?

lizards

My mother owns a house outright that she does not live in the other side of the country, it is worth at a rough guess £150-200K. She is currently in expensive rental accommodation near me, as although she's a long way from needing to be in a care home, she does need family support now. For various reasons that would take too long to go into and aren't relevant (not related to finances - it's family-related), much as we wish it were possible, it's unlikely she'll be able to sell this other home for 6-12 months.

She has some reasonable capital already, but she needs at least an extra 50K to be able to afford to buy a place near me even vaguely suitable to spend the rest of her years. She needs (again, long story) to find somewhere to at least put an offer on in the next month or so.

As a pensioner on a state pension, her income is minimal. Is there any way she can use some of the equity in the house she still owns to get her ~£50K to add to her existing capital to allow her be able to buy somewhere suitable near us? She should be able to sell the house in 6-12 months but it won't be soon enough.

Bridging loans and definitely mortgages seem impossible given her pension wouldn't cover the repayments, and equity release is longer term though it is tempting to suggest she takes the ERC hit. However, it's not her main residence and she can't claim on it as a second home as it sounds like they require you spend at least four weeks a year there, which is totally impractical for her as it is so far away and she's not in great health.

As we're in the middle of moving ourselves, there's nothing we can do to help her financially either, whether out of our own pockets or via loans, as that could mess up our own house move, and we can't be certain how much we'd have left to lend her anyway until we've moved. 

If anyone has any ideas, we'd be very grateful! Thank you!

Thrugelmir

Now is the time to start marketing the property and selling it. Far more cost effective than obtaining short term finance.  

lizards

Oh definitely, we all wish very much it were as simple as that. Unfortunately the reason she can't sell it for 6-12 months has nothing to do with market conditions, it would probably sell fast and would certainly go at auction quickly (popular area). It's complex, but morally and ethically we need to be considerate of another elderly family member who is in poor mental health and quite vulnerable, and has an involvement (not financial) in the property which will take us time to carefully sort out before it can even be marketed.

SDLT_Geek

lizards said:

My mother owns a house outright that she does not live in the other side of the country, it is worth at a rough guess £150-200K. She is currently in expensive rental accommodation near me, as although she's a long way from needing to be in a care home, she does need family support now. For various reasons that would take too long to go into and aren't relevant (not related to finances - it's family-related), much as we wish it were possible, it's unlikely she'll be able to sell this other home for 6-12 months.

She has some reasonable capital already, but she needs at least an extra 50K to be able to afford to buy a place near me even vaguely suitable to spend the rest of her years. She needs (again, long story) to find somewhere to at least put an offer on in the next month or so.

As a pensioner on a state pension, her income is minimal. Is there any way she can use some of the equity in the house she still owns to get her ~£50K to add to her existing capital to allow her be able to buy somewhere suitable near us? She should be able to sell the house in 6-12 months but it won't be soon enough.

Bridging loans and definitely mortgages seem impossible given her pension wouldn't cover the repayments, and equity release is longer term though it is tempting to suggest she takes the ERC hit. However, it's not her main residence and she can't claim on it as a second home as it sounds like they require you spend at least four weeks a year there, which is totally impractical for her as it is so far away and she's not in great health.

As we're in the middle of moving ourselves, there's nothing we can do to help her financially either, whether out of our own pockets or via loans, as that could mess up our own house move, and we can't be certain how much we'd have left to lend her anyway until we've moved. 

If anyone has any ideas, we'd be very grateful! Thank you!

If your mother still owns the other house when she buys the new one, the extra 3% stamp duty land tax will be due (assuming the purchase is in England).

It will not be recoverable on a sale of the other property (assuming your mother has not lived in it within the last three years).

martindow

Bridging loans are very expensive especially where there is only a vague idea of how long it would be needed for.  Is anyone in the family in a position to lend money?  A charge could be placed on your mother's house to secure this so it is paid back on the sale.

theartfullodger

Thrugelmir said:

Now is the time to start marketing the property and selling it. Far more cost effective than obtaining short term finance.  

+1, exactly..

Recently flogged off my late brother's house, he had equity release, usurious and immoral interest rates.. 

steampowered

Bridging loans are eye wateringly expensive. You face super high interest rates (upwards of 10% per year - bridging loans often quote rates of 1% per month which adds up to well over 10% if held for a year!) plus lots of up front fees.

If your mother can get a conventional mortgage, that would be much cheaper than anything else. I'm not sure whether she could get a conventional mortgage in her circumstances though.

And as others have pointed out, there will be higher rate stamp duty to pay (3% of the value of the property, on top of regular stamp duty) when buying a second property.

K_S

@lizards A chain-break bridging loan does not require a substantial income as long as the exit (repaying the bridging loan) doesn't require a mortgage. Depending on the numbers, it could be secured across the 2 properties to bring down the LTV.

However, as others have mentioned, the interest+fees can be high (as an example at 50/60% LTV around 0.45%/month plus 1.5-2% lender fee) and you should ideally have a clear plan to exit in no more than 6 months so may not be suitable if you only have a vague timeline.

For a standard mortgage, she'd need to have sufficient income to meet affordability.

Thrugelmir

lizards said:

 we need to be considerate of another elderly family member who is in poor mental health and quite vulnerable, and has an involvement (not financial) in the property which will take us time to carefully sort out before it can even be marketed.

Then continuing to rent until this is resolved seems the financially better option. To conclude a sale is most likely going to take months to effect by itself. Any underwriter considering the application for short term bridging finance is going to have considerable reservations gven the circumstances and open ended uncertainty. 

lizards

SDLT_Geek said:

If your mother still owns the other house when she buys the new one, the extra 3% stamp duty land tax will be due (assuming the purchase is in England).

It will not be recoverable on a sale of the other property (assuming your mother has not lived in it within the last three years).

Oh crikey, that's an excellent point, I'd clean forgotten about that. Not good at all (no, she hasn't ever lived in it, it belonged to her mother) - that 3% probably dwarfs the enormous interest she'd need to pay on a bridging loan too.

Thank you!

lizards

Thank you all. Yep, we knew the bridging loan interest would be excessively high, though it did feel worth it in the context of being able to move sooner rather than later. It would most likely be no more than 30ish% of the property value that she owns (it's doubtful she'd need more than 50k), leaving 70ish% equity. I am not a big fan of bridging loans either, but it's a tough call when mental health is involved - she's very unhappy in her rental, she's not in the best health, and you can't take your money with you when you go - we'd all rather she spent extra on being happy rather than us inherit it.

K_S - are you saying it is possible to take out a bridging loan and not have to make repayments? Or potentially someone could take out a slightly bigger bridging loan and use the excess to make repayments?

The only person in our family who could reasonably lend her money would be me, and we can't during our own house sale, as we don't know if we'll need it or not for certain, plus I'm not sure we'd have nearly enough anyway!

Ideally we'd be able to market and sell this other house ASAP (very tempted by auction, not the modern method, for the speed involved) Maybe being able to honestly say to our vulnerable family member that there are no other options for my mum might help her speed things up, if she's in a good enough place mentally after we break the news mum needs to sell.