Parents, who'd have them??

dinkylou

I agree completely with Margaret.

Even though you want to help your mum, she is taking advantage of your good nature. Maybe it is her who needs to be looking at this board and finding ways to alter her finances/spending habits rather than you.

I know you feel terrible seeing her upset about this but it really is something that she needs to take responsibility for, not you.

Imagine how angry you would feel if after bailing her out, she went and bought more things or carried on spending. Is it really worth ruining your relationship for?

westernpromise

elliot330 wrote:

My idea is to offer them £117k for the house, to clear their debt, and rent it back to them for whatever the cost of the mortgage interest is, which currently is about £490 and month.

AIUI most BTL mortgages stipulate that the rent must be 130% of the mortgage payments. The BTL lender will estimate the likely rental yield based on its surveyor's assessment of the property's value. 130% of the mortgage you need doesn't look likely on the numbers you've given.

Lenders' surveyors are always conservative in their valuations. If the borrower defaults and the property has to be repossessed and sold, the lender needs to be able to show that they got a reasonable price for it. So their surveyor colludes with them by undervaluing the place, so that if a sale does happen, the lender can give it away to sell it quickly and the defaulting borrower has no recourse because an 'independent' surveyor said it was worth less than it really was.

What this would mean is that if that if you try to BTL the place and it's worth £125k, the surveyor will probably say it is worth about £105k. The rental yield will be assumed to be 5% of that (£5,250 per annum). That in turn has to be 130% of the mortgage loan repayments. So the repayments cannot be more than £4,038 a year - because 130% of £4,038 is £5,250.

That rental income will determine what you could borrow. At an interest rate of 5%, it would allow a mortgage of about £81,000. So that's the most you can reasonably expect to raise from BTLing it, I would guess - which is not enough to remortgage it.

This is how I would break it to them that you can't help. What would happen is that they'd end up still owing £36k and they'd have to put it onto another personal loan, assuming they can even get one once they are no longer home owners. A loan of that size plus covering the mortgage interest would probably leave them quite a bit worse off.

Their best bet, as others have said, is to sell the house. There will be non-trivial transaction costs, but they can then rent another house worth £125k for about £520 a month. They then deposit the savings versus the current £1,000-a-month bill into a mini-cash ISA apiece. After about 2 years at 5.4% or so they'll have roughly £12,500, which will be a 10% deposit on another place if they still want to buy.

Only you know your parents but there must be a risk that they will default knowing that you won't chuck them out. There is also the issue of your strategy to repay any BTL mortgage - normally you do this by selling the property but if your mother lives in it are you really going to do this?

elliot330

Hi Western Promise and others that have taken time to reply,

Thanks for taking the time to explain the figures etc. I've re-read your post's several times, and think that with all the will in the world, I'm not going to be able to afford it, and starting to think if I need this amount of stress at this point in my life.

Thanks to all for your advice

Elliot

rchddap1

My OH's mother & his sister asked him the same question a few months back....that is, 'buy mum's house and she'll pay you rent'. As much as we'd like to help her:

1. We don't have the cash to pay for the mortgage should she default on the rent
2. OH would find it very hard to throw her out and the rest of the family would never forgive him for it.
3. She is in far too deep for us to beable to help and she has to sort things out for herself.
4. We don't really believe we'd get the 'rent' each month anyway.

What his mother and sister didn't seem to realise is that they put him in a very difficult position. It has taken him years to sort himself out and he would like to help, but we both feel that it would end up knocking him off his recovery ladder, and wouldn't do his mum any good anyway.

It is a difficult situation to get yourself into and one that is not easily resolved if rent is not paid...particularly if the excuse 'its only going to family' is used.

elliot330

rchddap1 wrote:

1. We don't have the cash to pay for the mortgage should she default on the rent
2. OH would find it very hard to throw her out and the rest of the family would never forgive him for it.
3. She is in far too deep for us to beable to help and she has to sort things out for herself

Your points, especially number 2 are the reasons for me holding back. But it still doesn't help when its family and you think you can help

I've been reading about "IVA's" would an IVA company be able to help by helping her to reduce her monthly mortgage and loan payment to a better interest rate?? or is this not what an IVA is for??

Elliot

crystal_clear

elliot330 wrote:

I've been reading about "IVA's" would an IVA company be able to help by helping her to reduce her monthly mortgage and loan payment to a better interest rate?? or is this not what an IVA is for??

Elliot

Hi Elliot
I am of the belief that entering an IVA will not assist in anyway with the secured debt... IVA only entertain unsecured debts until the later end when your mum would be asked to remortgage to release equity to pay full and finals on the unsecured debts..

what your mum could do though is contact an IFA (financial advisor) or a mortgage broker and possibly go for a self cert mortgage as I believe that self cert mortgages you do not in theory need proof of income just the ability to pay and this may give them a better chance at getting a better rate and enough to clear up debts at same time as lowering the monthly outgoings??? I dont know i am no expert. (please do not take what i say to be gospel its just bits that i have been told by others)
you may want to enquire on the mortgage board about how they run these

I hope this is of some help