Parents can't afford their mortgage: Release equity v's Taking on the mortgage myself 27 October 2022 at 3:49PM in Mortgages & endowments 10 replies 1.1K views

Geoff765

I'm looking for some advice as I don't really know where to start.
My parents are in their late 60's and still have a mortgage. They have been paying interest only for some time now with the plan being to sell up once they were both fully retired and downsize. However, due to health reasons (dementia), this is not really an option now.
They have mentioned equity release as a way of paying off the mortgage but I am wary of them being ripped off. I wondered about transferring the ownership to me and taking on the mortgage myself (probably as interest only as I couldn't afford too large a payment). The outstanding mortgage is £70k. The house is worth approx £250k.
I would see it as an investment rather than increasing my pension contributions (which I had planned to do next year) and would allow them to stay worry free in their home. At the point that neither of them were around, I could sell and pay off the remainder of the mortgage. Would there be implications if they needed to go into a nursing home? We wouldn't be transferring ownership to avoid any fees. It's so that they can remain living in their home. I know I also need to consider that they may continue to live for a long time yet and so how feasible it is for me in my mid-40's to continue to pay the mortgage for them. My own mortgage will be paid off in approx 6 years.
Has anyone else been in a similar situation or have any advice as to where to start? Speak to a solicitor who specialises in property law?
Thank you in advance.

Linton

ER in the form of a lifetime mortgage could be worth looking at.  I think a loan of £70K with a house worth £250K may be possible with the interest payments added to the mortgage  and the mortgage paid off when they both die or go into full time care and the house is sold.  Nowadays ER no longer deserves the reputation it had 20 years ago. Large well known companies are in the market which is highly regulated  - LV and L&G are major players.  

You (or rather they) should talk to a specialist independent advisor who can cover the whole market.  You do not generally get lifetime mortages off the shelf from the high street lenders.

You taking over the house and paying the mortgage could have major problems.  The mortgage company must be able to sell the house should you stop paying.  Clearly they dont want to be seen throwing an elderly couple out onto the streets.

silvercar

Do you have siblings?

does their mortgage run out soon? So that they or you would need to remortgage?

One option would be to leave things as they are and you pay the mortgage, possibly putting a charge on the property so you would get your money back if they needed to sell up for any reason.

GAMBITv5

Perhaps buying from them on a concessionary purchase BTL and charge them rent to cover the interest?

lisyloo

GAMBITv5 said:

Perhaps buying from them on a concessionary purchase BTL and charge them rent to cover the interest?

That has a lot of potential pitfalls wrt deprivation of assets especially with the dimensia (and therefore expectation of care at some point).

Keep_pedalling

Your parents would be very foolish to transfer ownership to you especially as At least one of them is already in poor health. Any LA would deem this as deliberate deprivation of assets should residential care be required.

ER would give them more security than your plan, which would leave them at risk of loosing their home should you run into financial difficulty, get divorced or die before them. They will never be ripped of by ER as they will never have to pay it back.

You parents welfare is far more important than any inheritance that you might receive so that needs to be the priority. Do they both have wills and LPAs in place? If not that should be a priority (hopefully the parent with dementia still has the capacity to do both)

jimjames

GAMBITv5 said:

Perhaps buying from them on a concessionary purchase BTL and charge them rent to cover the interest?

Is it even possible to do that with a BTL? Renting back after selling is normally a very restricted activity and most BTL lenders won't allow family to rent.

Geoff765 said:

The outstanding mortgage is £70k. The house is worth approx £250k.

Is it possible for them to buy a house for £180k or less in their area?

dander

I think the paying the mortgage instead of investing in pension is fraught with difficulties considering you wouldn't transfer the ownership. Your money would just be disappearing into their "estate" and is pretty locked in. What if they are still alive and living in the house when you want to retire? What if your money takes their estate into inheritance tax boundaries? I think the lifetime mortgage equity release type options would be much wiser for everyone. Definitely take advice, but those type of mortgages are offered now by very mainstream reputable lenders so can be very safely done.

MWT

Geoff765 said:

They have mentioned equity release as a way of paying off the mortgage but I am wary of them being ripped off....

Far from being 'ripped off' it is potentially the safest option given the complexities of the other routes you mention.

I would suggest they talk to StepChange Financial Solutions, as they offer their advice without fees, unlike most of the other advisors.

There is no obligation to proceed with them and your parents may prefer to use an existing advisor, but as a starting point it will help them to understand the process and the hurdles they may need to overcome...

Given that dementia has been mentioned, there will potentially be some issues around the decision process and their ability to give informed consent, but hopefully that has already been addressed in the form of a lasting power of attorney (LPA)?

Annisele

Geoff765 said:

I wondered about transferring the ownership to me and taking on the mortgage myself (probably as interest only as I couldn't afford too large a payment). ...

We wouldn't be transferring ownership to avoid any fees.

I'm confused about what you're trying to do (but I suspect that so are you, and that's the point of your post). Are you thinking of transferring ownership or not? I very much doubt that "avoiding fees" ought to be top of your parents' list of concerns.

If you are going to transfer ownership of the whole house, then you pretty much have to buy from your parents at full market value. Anything else will open up a giant can of worms called "deprivation of assets". But it sounds as though you don't have a spare £250k lying around, and you can't afford a £250k mortgage. So that option sounds like it's out because you can't afford it.

There's no point in your being added to their mortgage without taking ownership of all/part of the house; that would just open you up to liability without giving you any benefits. If you want to pay their mortgage, then just pay it - give them a gift every month to cover it. (Or potentially lend them an amount each month - there are potential complications there, with interest and security, but it might be an option.) But if their mortgage comes to an end soon, that might be a problem.

Could you borrow £70k secured against your own house, then lend that money to your parents?

I second the recommendation for your parents to speak to StepChange.

If they both have dementia, it's possible that staying in their own home isn't actually the best option. You don't actually say what they want to do - have they said?

user1977

dander said:

Your money would just be disappearing into their "estate" and is pretty locked in. What if they are still alive and living in the house when you want to retire? What if your money takes their estate into inheritance tax boundaries?

Lending, rather than giving, the money would avoid some of this.