What do I need to consider if buying a house with relatives? 10 March at 5:50PM in Mortgages & endowments 10 replies 390 views

PowerHandle

There is a possibility that some older close relatives would like to buy somewhere with my family and I, something ideally with an annex for them and the main house for us. They don't need full time care, just someone to be local whilst they retain independence. There's no rush on this, timescales are maybe within the next 12-24 months. I do have a few questions though:

How does getting a mortgage work in circumstances such as this? They would be selling their property (owned) as well as us selling ours (mortgaged) and combining the funds to get a larger place. Rough numbers are they would be contributing £150k, we would be contributing around £50k. According to most mortgage calculators if I were applying normally (just my wife and I) we could expect to be offered circa £350k with a 10% deposit, so I would have thought with £200k we could be looking with a budget of circa £550k. I'm the main earner and my wife earns a full time wage, the relatives are both retired, pension income only. Do these figures sound about right?

Do they have to have their names on the application or deeds (if successful) or is it advisable that they do?

Any help appreciated, we are going to see a mortgage advisor in a few months just to get a feel for what may be possible but I'd rather not go into the meeting completely blind.

Thanks

Sarahspangles

Given their ages, do you understand their intentions for when they pass away?  Do you have siblings and where that does that leave them?

I actually think multi generational living is a great idea, as the contact and support can postpone the point at which someone needs care visits or a care home.  But there are some gotchas to do with inheritance (and family tensions) and care costs that can complicate things.  Plus the strain placed on the family when they are meeting the majority of care needs.

ACG

An annexe can be an issue with a lot of lenders - so that needs to be looked into. 
Having 2 generations buying a home together can be an issue - in essence your relatives are putting the money down but presumably (and understandably) do not want to be liable for the mortgage. That can really only be done if they "gift" you their deposit. That brings its own problems - its not a gift if they expect to reside in the property and what happens if they do need care and/or any other relatives are expected inheritance. 

Lots of things to consider but ultimately there will probably need to be some give and take. You are probably not going to get everything you want. You need to look at how that effects you, your relatives and any next of kin. 

I think it might be a bit too complex to explain on a forum. I think you are right to involve a broker as there is a lot to contend with - all possible to overcome. 

PowerHandle

Sarahspangles said:

Given their ages, do you understand their intentions for when they pass away?  Do you have siblings and where that does that leave them?

I actually think multi generational living is a great idea, as the contact and support can postpone the point at which someone needs care visits or a care home.  But there are some gotchas to do with inheritance (and family tensions) and care costs that can complicate things.  Plus the strain placed on the family when they are meeting the majority of care needs.

Their way of looking at it is that we will be able to benefit from the inheritance long before they pass away, which means they can enjoy having their grandchildren around whenever they want, as well as seeing us enjoy a better home. They reckon the house they currently have is too big for their needs and is becoming too much to manage by themselves. Sibling catered for in a financially equal manner and happy with that arrangement.

ACG said:

An annexe can be an issue with a lot of lenders - so that needs to be looked into. 
Having 2 generations buying a home together can be an issue - in essence your relatives are putting the money down but presumably (and understandably) do not want to be liable for the mortgage. That can really only be done if they "gift" you their deposit. That brings its own problems - its not a gift if they expect to reside in the property and what happens if they do need care and/or any other relatives are expected inheritance. 

Lots of things to consider but ultimately there will probably need to be some give and take. You are probably not going to get everything you want. You need to look at how that effects you, your relatives and any next of kin. 

I think it might be a bit too complex to explain on a forum. I think you are right to involve a broker as there is a lot to contend with - all possible to overcome. 

Why are annexes an issue? I guess something to do with what they're used for, rented, Air BnB etc?
 

Sarahspangles

I hope it works out for you, but it is worth thinking about some of the less happy future scenarios.  These are all based on issues my family has experienced over the years with older family members.

Is the ‘contract’ money (for house) in return for some future care?  Will you resent your siblings who haven’t shouldered any of that burden? Will this imply one of the adults effectively becoming an unpaid carer at some point?  What about their lifestyle and future pension needs?

At the point when the parent(s) really can’t cope without some support, or have frequent but unpredictable periods of ill health, what arrangements would you need to make to continue working, or to go on holiday yourselves?  

Dementia is one of the common reason for admission to care, it’s exhausting for family to manage and lots of changes are needed to make the living environment safe.  In that scenario, would care costs need to be met from the value of the house - the local authority can disregard financial transactions made to avoid care costs.

gary83

worth considering worse case scenarios, what would happen if you and your wife got a divorce? If you end up having to sell the family house who gets what out of the proceeds? What would happen to the elderly residents in the annex?

what happens if through illness or redundancy you’re no longer able to pay the mortgage?

user1977

PowerHandle said:

Why are annexes an issue? I guess something to do with what they're used for, rented, Air BnB etc?
 

Yes, they would view it as an increased risk of e.g. trying to repossess and finding some sort of tenant in there whom they hadn't agreed to.

MWT

Also plan in advance how you will split bills for energy, water etc. as we have seen a number of posts on the energy board having problems dealing with elderly parents in the annex running the heating at tropical levels with everything being paid for at increasingly high prices as there is only the one meter...

Best to deal with things like this upfront and plan to have sub-meters for the annex and ongoing payment from those in the annex...

Do also consider your relatives income in retirement as they are giving up the ability to use equity release to improve their situation and similarly, if it becomes necessary to consider long-term care they have also lost the ability to use their house to allow them access to a higher quality of care home...

PowerHandle

MWT said:

Also plan in advance how you will split bills for energy, water etc. as we have seen a number of posts on the energy board having problems dealing with elderly parents in the annex running the heating at tropical levels with everything being paid for at increasingly high prices as there is only the one meter...

Best to deal with things like this upfront and plan to have sub-meters for the annex and ongoing payment from those in the annex...

Do also consider your relatives income in retirement as they are giving up the ability to use equity release to improve their situation and similarly, if it becomes necessary to consider long-term care they have also lost the ability to use their house to allow them access to a higher quality of care home...

The bills and ongoing costs are probably the least worry, as one of the older relatives is a retired accountant and is very keen on making sure all 'i's are dotted and 't's crossed - I know they feel much more secure in knowing exactly who is expected to do what, and how things will be shared and paid for along with written agreements that we can all see. The equity release thing is something they really want to avoid, as they're firmly of the opinion that they don't want to reduce the inheritance available. They're fortunate that they are sufficiently financially independent that unexpected costs (even significant ones) should not be an issue. 

gary83 said:

worth considering worse case scenarios, what would happen if you and your wife got a divorce? If you end up having to sell the family house who gets what out of the proceeds? What would happen to the elderly residents in the annex?

what happens if through illness or redundancy you’re no longer able to pay the mortgage?

The illness and redundancy I'm not too worried about, which might seem like I'm a bit too laid back about it but I know what provisions are in place for ill health and redundancy for me is highly unlikely - no role is truly safe but I'm in a role that is rather specialised, permanently in demand and likely to become more so. All the same, I will put some thought into how I'd deal with it.

Divorce - hadn't considered that, obviously I hope it would never happen to me but its well worth considering as a what if.

Thanks for the advice so far folks.

Annisele

PowerHandle said:

Divorce - hadn't considered that, obviously I hope it would never happen to me but its well worth considering as a what if.

Whilst you're considering what ifs - you don't say if the "older close relatives" are married, but if they are there's also a possibilty they might divorce. (Probably unlikely at this point - but not impossible.) Even if they're siblings or related in some other way, it's still possible they'd decide after a while that they were sick of the sight of each other, and I think it's worth considering what you'd do if that happened.

Linton

 What-if you die first? Would the house need to be sold to repay the mortgage? Could your relatives end up being homeless and penniless?  Their security should be your and their primary concern.

Another what-if that if I remember correctly has been reported on this forum:  parents sell house, and a house is bought in daughters name for them to live together.  They fall out and daughter evicts them.