Buying mum and dad’s house and granny flat

Ellalou

Hello, 

just looking for any thoughts / shared experiences. 

My mum and dad are nearing retirement, have an interest only mortgage with 2.5 years left - they won’t be able to pay off the full balance. 

We are thinking of options - I stay on the same street with my husband and 2 kids. We have a mortgage on our property. 

Theirs is an end terrace with a bigger garden / space for extending etc. We are in a mid terrace.

Options :

1. moving them onto another interest only deal for a short time to buy some time and thinking about other retirement options later. 

2. Consider a lifetime mortgage in a couple of years when the market settles. They do have equity in the house. 

3. Downsize. 

4. We sell our house, buy theirs and build an annex / granny flat in the garden or onto the side of the house for them to live in. 

Option 4 is what I’m really wanting thoughts on, I know we would really need someone who knows what they are talking about to advise as there would be tax implications and other things to consider with them living on the grounds of the property etc. but does anyone know of anyone who has done something similar? 

Figures : their home is worth approx 300k, they have £140k outstanding. 

We have £176k outstanding with a home worth about 290-300k

Thanks for any advice.

Ellalou

PS. I have seen something similar in a property round the corner so I know it has been done before in similar sized / style of properties. I just wonder what all of the implications are. And also consideration of inheritance tax etc if we were to buy their property under market value as they would effectively be gifting the equity to us. 

Keep_pedalling

The big problem I see in option 4 is that of what happens if your circumstances change. How will you deal with your parent or you divorcing? What happens if you predecease your parents? What happens if any of you become bankrupt? What do yo do if a job opportunity takes you to another part of the country or abroad?

You parents are only just approaching retirement so we are talking about a very long term arrangement and the chances of any of the above happening over the long term are quite high. In their circumstances I would be looking to over pay as much of the capital as I could afford and look at downsizing ASAP.

dimbo61

Don't think your parent will get another Interest only mortgage once current deal ends 

MWT

dimbo61 said:

Don't think your parent will get another Interest only mortgage once current deal ends 

It can be easier to get an interest only mortgage at their age, than it would be if they were younger, there are some 50+ and RIO (Retirement Interest Only) products that could help, but not as a short term solution.

A lot depends on their income and their guaranteed income in retirement, especially as it may be stress-testing on only one life surviving.

Ellalou

dimbo61 said:

Don't think your parent will get another Interest only mortgage once current deal ends 

We have looked into it and yes there are interest only products out there for older people. Some lenders are lending into retirement. Obviously all depending on affordability. 

MWT

Ellalou said:

dimbo61 said:

Don't think your parent will get another Interest only mortgage once current deal ends 

We have looked into it and yes there are interest only products out there for older people. Some lenders are lending into retirement. Obviously all depending on affordability. 

Just take care if you are considering these as a short-term solution (your option #1)  as they tend to have significant early redemption penalties as they are designed to run for the rest of their lives or until they enter a long term care facility...

silvercar

If option 4 is really the favourite, would it be easier to buy somewhere already configured. Otherwise where would you all live while you are building and extending? 

If you’ve never lived together before, don’t underestimate the stress of adjusting to living arrangements changing, then factoring in health concerns of the elderly and the possibility of losing one parent and the dynamics changing again.

MWT

Ellalou said:

Option 4 is what I’m really wanting thoughts on, I know we would really need someone who knows what they are talking about to advise as there would be tax implications and other things to consider with them living on the grounds of the property etc. but does anyone know of anyone who has done something similar? 

You will want a good broker to help navigate the complexities of the mortgage application in these circumstances.

Have you got a rough idea of what it would cost to make the modifications you are proposing, and how were you intending to finance those changes?

If the plan was for your parents to use their equity to cover the building works you need to consider how they protect their interest in the property moving forward...