Trying to buy out my father's lifetime mortgage (equity release)

AnonymousUsername

I am in a very unique situation and am struggling to find advice. My father has a lifetime mortgage that he took out around 15 years ago for the house we both live in. House valued at around £350k, debt is £230 and rising massively every year (last years interest was £12,500). I want to buy out the debt with a mortgage, so that dad would retain his current equity and I would have a mortgage for the other part of it.

He is elderly, and will most likely not be able to be on the new mortgage. I am single, 44 and self-employed – all attributes which have immediately turned off the mortgage advisers I have spoken with (understandably). I don’t have anybody that could go in on the mortgage with me.

My employment: For 5 years I have run a small Ltd company (one man show) that I work from home in, my revenue is around £25.5k. In Feb I also started a sideline as a Sole Trader, which is projected to make 8k this tax year. As I understand it, for the side hustle to be considered in my borrowing calculation I would need 2 years of accounts for it. I have a deposit right now of 25k, with a possibility of borrowing 10k from a family member if I can get the mortgage to work. I am also in the process of selling a load of personal belongings to bring that deposit amount up, which will help by 2-3k.

Down the line, there would be no issue paying the mortgage as I would be able to have 2 lodgers in and still run my businesses from the home, which would cover the mortgage easily.

I have a good credit record, and around 5k in credit card debt that is managed with 0% balance transfer credit cards. I am a first time buyer.

I need to find a solution to how to make this work, so that my dad’s modest estate isn’t completely devoured by interest, which at current calculations it could be in around 6 years.

Considering the above, does anybody have any out-of-the-box, wacky ideas to share that might point me in the right direction?

Brie

Have you talked to the equity release company to see if they have an option available?  They may be happy with you paying the interest plus a bit and gradually regain more of a share of the house.

MWT

AnonymousUsername said:

I am in a very unique situation and am struggling to find advice. My father has a lifetime mortgage that he took out around 15 years ago for the house we both live in. House valued at around £350k, debt is £230 and rising massively every year (last years interest was £12,500). I want to buy out the debt with a mortgage, so that dad would retain his current equity and I would have a mortgage for the other part of it.

The mortgage has to be for the whole house, not just your part, so that is an issue in itself.

Even if the ER lender allows partial repayments you are still stuck with the issue of having to sell the house to repay the ER loan when your father has gone, or has entered long term care, if you can't get a mortgage large enough to pay off the loan.

It isn't being single, self-employed and 44 that is the problem, it is the amount you are trying to borrow vs your earnings from what you have posted here, together with the complexity of having your father on the deeds.

Were you living in the property at the time he got the ER loan originally?

If so then you should have signed an occupancy waiver at that time, or if you have moved in since then you should have signed one when you moved in, did that happen? 

amnblog

Your issue with this plan is your self employed income is not close to being able to support a £200,000 or £230,000 mortgage.

Your proven business profit would need to be close to, or exceeding your current age.

Might be simpler just to cover the mortgage interest on the current equity release deal (should the Lender allow it).

ACG

Its not age, relationship status or the fact you are self employed that is turned off the mortgage brokers. Its because financially it does not stack up. 

Buying your dads house and moving in 2 lodgers sounds like just what your dad would want in his final years. If you want to preserve the equity, you could pay the interest. 

AnonymousUsername

ACG said:

Its not age, relationship status or the fact you are self employed that is turned off the mortgage brokers. Its because financially it does not stack up. 

Buying your dads house and moving in 2 lodgers sounds like just what your dad would want in his final years. If you want to preserve the equity, you could pay the interest. 

I might not have explained myself properly: I understand that it will never work with a standard mortgage-type situation, so I am hoping for some (as much as I hate the expression) "outside-of-the-box" ideas for how to protect my father's equity. 

The intention with the lodgers is down the line, i.e when my father passes. He has suggested that we do it now, but I don't think he would like others in his space. 

Thanks for your reply, lots to think about.

ACG

AnonymousUsername said:

ACG said:

Its not age, relationship status or the fact you are self employed that is turned off the mortgage brokers. Its because financially it does not stack up. 

Buying your dads house and moving in 2 lodgers sounds like just what your dad would want in his final years. If you want to preserve the equity, you could pay the interest. 

I might not have explained myself properly: I understand that it will never work with a standard mortgage-type situation, so I am hoping for some (as much as I hate the expression) "outside-of-the-box" ideas for how to protect my father's equity. 

The intention with the lodgers is down the line, i.e when my father passes. He has suggested that we do it now, but I don't think he would like others in his space. 

Thanks for your reply, lots to think about.

Ah sorry, I misunderstood. I thought you wanted to move in 2 lodgers just to try and keep a bit of equity as inheritance... At least you know my heart is in the right place when it comes to your dad. 

The only way I can think you might be able to do it would be to buy it as a family BTL. 
But you would need to at least service the interest on the mortgage each month and then you have to consider stamp duty implications both on this property and your home if you are not already a homeowner and potentially CGT and inheritance tax if dad is in essence gifting you the equity. 

MWT

AnonymousUsername said:

I am in a very unique situation and am struggling to find advice. My father has a lifetime mortgage that he took out around 15 years ago for the house we both live in. 

ACG said:

The only way I can think you might be able to do it would be to buy it as a family BTL. 
But you would need to at least service the interest on the mortgage each month and then you have to consider stamp duty implications both on this property and your home if you are not already a homeowner and potentially CGT and inheritance tax if dad is in essence gifting you the equity. 

That isn't going to work with them both living in the house though is it?

The big concern here is that even if some of the ER interest is paid off to stop the equity declining, the house they both live in is going to have to be sold to repay the loan at the point when the father sadly dies.

ACG

MWT said:

AnonymousUsername said:

I am in a very unique situation and am struggling to find advice. My father has a lifetime mortgage that he took out around 15 years ago for the house we both live in. 

ACG said:

The only way I can think you might be able to do it would be to buy it as a family BTL. 
But you would need to at least service the interest on the mortgage each month and then you have to consider stamp duty implications both on this property and your home if you are not already a homeowner and potentially CGT and inheritance tax if dad is in essence gifting you the equity. 

That isn't going to work with them both living in the house though is it?

The big concern here is that even if some of the ER interest is paid off to stop the equity declining, the house they both live in is going to have to be sold to repay the loan at the point when the father sadly dies.

I missed where it said both living in the property. 
There was only a slim chance of that working anyway but with that out, I am struggling. 

MWT

ACG said:

MWT said:

AnonymousUsername said:

I am in a very unique situation and am struggling to find advice. My father has a lifetime mortgage that he took out around 15 years ago for the house we both live in. 

ACG said:

The only way I can think you might be able to do it would be to buy it as a family BTL. 
But you would need to at least service the interest on the mortgage each month and then you have to consider stamp duty implications both on this property and your home if you are not already a homeowner and potentially CGT and inheritance tax if dad is in essence gifting you the equity. 

That isn't going to work with them both living in the house though is it?

The big concern here is that even if some of the ER interest is paid off to stop the equity declining, the house they both live in is going to have to be sold to repay the loan at the point when the father sadly dies.

I missed where it said both living in the property. 
There was only a slim chance of that working anyway but with that out, I am struggling. 

About the only thing I can think of is to down-size now, to something affordable with a combination of the remaining equity and an affordable mortgage...

... but that does depend on the terms of the ER loan and if there is any ERC payable in that circumstance...

Otherwise I don't see any way to retain ownership of the home in the long term.

AnonymousUsername

About the only thing I can think of is to down-size now, to something affordable with a combination of the remaining equity and an affordable mortgage...

This was something that we considered a little while ago, to sell up and buy a place together or even to rent a place together so that dad can then tuck away cash from his house sale. There would be an early repayment fee naturally, but it stops the horrendous onslaught of interest! I think the thought of moving from the house is a very stressful one for him, (and me!) and there are a lot of memories for him here (he and my mother bought the place for their retirement, and she passed last year). 

This is the only viable solution I have come across thus far, I will discuss it with him again. 

I really appreciate all of your replies and input! If there are any more ideas, please I am all ears.