Can we buy our parents house?

Ellalou

Hi, looking for some advice! 

My parents live in a lovely house with an interest only mortgage, both nearing retirement. My brother is 30 and also resides in the house. 

Their interest only mortgage ends in 3 years and they will not be able to pay it off. There is approx £185000 outstanding and they are paying whatever money they can towards the balance to bring it down over the next few years. 

We have spoken with the Halifax to see if what options if any they do have and they basically don’t have any. It would not be affordable to move onto a repayment mortgage and with their ages they wouldn’t get a long term on a new mortgage.

The house is worth approximately £300k - £320k at the moment.

There are 4 siblings, myself, my sister and 2 brothers who all want to help and keep the house in the family and all have good salaries. My question is can my parents sell us the house for the £185k to clear this mortgage? I know there may be inheritance tax implications as effectively it’s a gift of equity but Is it possible? 

My brother lives in the house, could he take out the mortgage with possibly one of us and have my parents still live in the house? 

We have talked this over and it would relieve a huge financial burden from my parents, mean they can think about retirement and also keep the house in the family. 

My next plan is to see an independent financial advisor / mortgage advisor but just wondered if anyone has done this or knows of anyone? 

I’m pretty sure this is not an uncommon scenario in families.

thanks for any advice! 

dunstonh

My question is can my parents sell us the house for the £185k to clear this mortgage?

yes

I know there may be inheritance tax implications as effectively it’s a gift of equity but Is it possible? 

And capital gains tax.  You get the double whammy do this.

Inheritance tax potential is because it is a gift they continue to benefit from.

Have you considered equity release?  That could resolve the burden & remove the tax issues

housebuyer143

Can they not apply for a retirement interest only mortgage? That way they do not need to sell? 

https://www.moneyhelper.org.uk/en/homes/buying-a-home/retirement-interest-only-mortgages

Ellalou

We’ve looked at the retirement interest only but they still need to pass the affordability assessments and with one of my parents going to only have a state pension, they base it on worst case scenario - my dad being left with the payment if my mum passes away and his state pension wouldn’t cover it! 

Ellalou

Not looked at equity release, I’ll have a look! 

housebuyer143

Ellalou said:

We’ve looked at the retirement interest only but they still need to pass the affordability assessments and with one of my parents going to only have a state pension, they base it on worst case scenario - my dad being left with the payment if my mum passes away and his state pension wouldn’t cover it! 

That's frustrating. Lifetime mortgage? Suppose that depends on the property value as to whether they would get enough to pay back the loan. 

Your brother is probably able to take out a mortgage if he is living there, and have your parents as permitted occupiers. I assume he does not have another property? 

Brie

mortgage considerations aside any gift your parents make to any of you could be considered to be deprivation of assets if/when they need care - either in the home or somewhere else.  So if you are considering purchasing it the best thing would be at full market value.  That way they wouldn't have given anything away.  OK, maybe they would accept a low price but not a 50% discount.

secondly - consider the implications of owning with your siblings.  B1 lives there - rent free? maintaining the place?  what about the folks?  rent free?  maintenance?  What happens when your folks die?  Do you tell B1 he has to move out?  Do you want to become landlords??  And what about the relationship between B1, B2, S1 & you?  And your marital relationships (or lack thereof)??  Do your spouses agree on this?  And what if B1 gets married or one of you gets divorced?  How will you divide up the marital property?  

Not saying it's not doable it's just that you need to think through a bit more of what you're getting in to.

Ellalou

He doesn’t have any other property, earns a good wage in IT. I was hoping one of us (other siblings) could go on the mortgage with him but don’t think that will be possible if we don’t live there and also have mortgages ourselves? 

The problem is my parents are 67 and 65 so the most of a mortgage term they would get if to go on the mortgage with my brother is probably to 75 and then we would be a very large monthly amount per month. 

I’m thinking a new mortgage altogether in my brother’s name / with or without another sibling on it may be our best option to keep the house. Then we can take it out over 20/25 years and comfortably pay it off.

The main thing I want to do is remove the financial stress from my parents and let them live comfortably in the house without having to worry. 

Surely there is a way! 

Ellalou

Brie said:

mortgage considerations aside any gift your parents make to any of you could be considered to be deprivation of assets if/when they need care - either in the home or somewhere else.  So if you are considering purchasing it the best thing would be at full market value.  That way they wouldn't have given anything away.  OK, maybe they would accept a low price but not a 50% discount.

secondly - consider the implications of owning with your siblings.  B1 lives there - rent free? maintaining the place?  what about the folks?  rent free?  maintenance?  What happens when your folks die?  Do you tell B1 he has to move out?  Do you want to become landlords??  And what about the relationship between B1, B2, S1 & you?  And your marital relationships (or lack thereof)??  Do your spouses agree on this?  And what if B1 gets married or one of you gets divorced?  How will you divide up the marital property?  

Not saying it's not doable it's just that you need to think through a bit more of what you're getting in to.

Thank you, yeah I totally understand there is a lot more to this and we would all need to sit down and work it out. 

We are just hoping at this point that there is an option to do this and a way round having to get them to sell the house to a stranger and move out. We all want to keep the house and the main thing is my mum and dad’s health mentally at this point as it’s causing a lot of angst. 

We need to speak to a specialist and see what options we have here. 

Thanks 

Brie

Ellalou said:

He doesn’t have any other property, earns a good wage in IT. I was hoping one of us (other siblings) could go on the mortgage with him but don’t think that will be possible if we don’t live there and also have mortgages ourselves? 

The problem is my parents are 67 and 65 so the most of a mortgage term they would get if to go on the mortgage with my brother is probably to 75 and then we would be a very large monthly amount per month. 

I’m thinking a new mortgage altogether in my brother’s name / with or without another sibling on it may be our best option to keep the house. Then we can take it out over 20/25 years and comfortably pay it off.

The main thing I want to do is remove the financial stress from my parents and let them live comfortably in the house without having to worry. 

Surely there is a way! 

So potentially B1 could buy the house from your folks and then they will be his lodgers.  This will make him their first line carer and that's not a duty to be taken on lightly.  That said if he's still living at home he is probably well used to their little quirks.  That would be the simplest solution so the rest of you wouldn't be tangled in financially.

The only other issue would be that B1 could take it into his head that he wants the place to himself.  And the folks have a large bank balance so could conceivably buy a small flat somewhere.  A bit of legal wizardry might help with that about them having a lifetime interest or something. 

While you're talking to the lawyers - do make sure your folks have POAs & wills in place.  Much easier to do it sooner rather than when it's too late.  Might also want to see about third party authority on their bank accounts just to smooth things along if they should be temporarily ill or something. 

Ellalou

What we do have in our favour is we have 3 years left on the interest only term. I would just like to try and sort this situation out sooner rather than later to relieve the stress and uncertainty