Buying land from neighbour who has equity release issue

Elmroad82

Hi,

I wonder if someone can advise me. My mother lives on the south coast in a semi detached house with quite a small garden. Her neighbours offered for her to buy a piece of their land for 40k which will increase her garden size significantly. But..the elderly neighbours have equity release (ER) on the house and after having their ER company assess and approve the land, the ER company have said that the value of the neighbours property has been reduced by 50k (I imagine about 5% of house value) from when they took the ER out (2018) and this needs to be paid to the ER company before any land can be sold. 

This seems problematic and a little unfair given it’s only dropped 5%. I believe that the ER company are on the title (I think).

Clearly it's impossible to predict how long it will take for the house to regain the 50k in value. Compounding this, the neighbours have talked about moving and as they get older they may lose interest in selling the land / be put off by the admin hassle so I was trying to find a way to buy it sooner rather than later..Does anyone have any creative ideas on how to buy the land or secure it quickly rather than wait until the house gains the required 50k in value (as deemed by the ER company)?

• Can my mum pay the 50k (an extra 10k on the offer) to the ER company via a solicitor and get a written "right" that the piece of land is transferred to her?
  
• Or can my mum put 40k in a solicitors account with a contract written to say that once the 50k has been repayed to the ER by the neighbour that the 40k is immediately paid to the neighbour and land is transferred to her automatically? (Similar to a conditional offer?)
• Any other thoughts?

Thanks 

Hoenir

Are her neighbours trying to raise money without recourse to the ER company.  Othertwise the exercise is of no benefit to them. Who is going to pay all the associated legal charges ? 

housebuyer143

I can't see how it's unfair given that the ER company doesn't gain anything by losing £50k off the sale value. It makes complete sense they need to be compensated before the owner can sell part of the house. 

Why would that neighbour want to sell the land to your mum and then be £10k poorer which is what you are suggesting with option 2. And option one, why would the owner want to sell all this land for £10k? I don't really understand or see what's in it for the neighbour.

If the neighbour wanted £40k, then the only option I see is your mum buys it for £90k otherwise the neighbour isn't getting £40k.
The way equity release works is that the company own a percentage of the house so as the value increases they will actually be asking for more for the land. You don't know how much they own, it could be a large percentage.

Elmroad82

housebuyer143 said:

I can't see how it's unfair given that the ER company doesn't gain anything by losing £50k off the sale value. It makes complete sense they need to be compensated before the owner can sell part of the house. 

Why would that neighbour want to sell the land to your mum and then be £10k poorer which is what you are suggesting with option 2. And option one, why would the owner want to sell all this land for £10k? I don't really understand or see what's in it for the neighbour.

Let’s say the ER company has a 200k stake in the house. I can see the issue if it’s gone from 1M to 150k but why would they care if the house has gone from 1M to 950k? They can still get their 200k back. 

Option 1 - the neighbour would be 10k better off as she would get 50k rather than the 40k offer. I omitted an important fact (re-edited in original post)  that the offer was made prior to the ER company doing their assessment and valuation. My mother was assured there would no issue with ER allowing land to be sold.
option 2 - all I’m seeing here is if there’s a way to lock in a contract for the future that when the house vakue goes up/ the 50k is paid back that my mother can buy the land - kind of a future option contract. 

Elmroad82

Hoenir said:

Are her neighbours trying to raise money without recourse to the ER company.  Othertwise the exercise is of no benefit to them. Who is going to pay all the associated legal charges ? 

I cant seem to redeit the original post... but yes they were trying to raise money. My mother had got the land valued and the valuer said due to the overall size of the garden and the small piece being sold, that selling it would have no impact on the value of the neighbours house. The ER valuer  verbally agreed.... but subsequently in writing then said the house had fallen by 50k in value and that's the issue.

housebuyer143

Elmroad82 said:

housebuyer143 said:

I can't see how it's unfair given that the ER company doesn't gain anything by losing £50k off the sale value. It makes complete sense they need to be compensated before the owner can sell part of the house. 

Why would that neighbour want to sell the land to your mum and then be £10k poorer which is what you are suggesting with option 2. And option one, why would the owner want to sell all this land for £10k? I don't really understand or see what's in it for the neighbour.

Let’s say the ER company has a 200k stake in the house. I can see the issue if it’s gone from 1M to 150k but why would they care if the house has gone from 1M to 950k? They can still get their 200k back. 

Option 1 - the neighbour would be 10k better off as she would get 50k rather than the 40k offer. I omitted an important fact (re-edited in original post)  that the offer was made prior to the ER company doing their assessment and valuation. My mother was assured there would no issue with ER allowing land to be sold.
option 2 - all I’m seeing here is if there’s a way to lock in a contract for the future that when the house vakue goes up/ the 50k is paid back that my mother can buy the land - kind of a future option contract. 

Equity release will own a percentage not a fixed amount, so any amount that it's devalued by will affect them and that's why they won't agree to it. 
Say they own 50% they wouldn't have bought that 50% at market value, the owner probably got a payout of half of what it was worth. That's just how it works, as they are giving out money now and potentially deferring payment until they die.

I don't think there would be a contract like that because of the way ER works. As the value increases they will want more for the land and there is 0 guarantee the value increases by 50k before the neighbour sells or they die.

Elmroad82

Oh dear. My mums already spent nearly 1k on a valuation and solicitor fees as she was assured all would be ok and wasn’t aware if the equity release issue.

housebuyer143

Elmroad82 said:

Oh dear. My mums already spent nearly 1k on a valuation and solicitor fees as she was assured all would be ok and wasn’t aware if the equity release issue.

That's such a shame! 
I am thinking about one particular type of equity release - home reversion, but I suppose they could have a lifetime mortgage - do you know the type? 
It's probably not going to change much as the options you gave given are not great, but someone else might have more ideas.

Elmroad82

The nieghbour said they were going to remortgage but I’m not sure if that will allow them to fill the 50k hole. Or even if they can remortgage. Am o right in saying there is nothing that can be done unless my mother decides to pay the 50k ER deficit plus say a slightly reduced offer of 35k (if the neighbours accept it) bringing the total amount to 85k. Is there a risk that ER have issue with even this idea?

propertyrental

I doubt this is going to go anywhere. One of the many downsides of equity release.

Elmroad82

propertyrental said:

I doubt this is going to go anywhere. One of the many downsides of equity release.

Even my mum paid for their ER then have them a cash amount? What professional can advise on this? A solicitor? I can’t call the ER company as they won’t discuss specific cases.