Naive parents - need help. Can't afford mortgage payments. Can't sell property either

chrisjoanne

Hi
I’m looking for users views on the position my parents have managed to get themselves into.
They are totally naïve when it comes to mortgages, loans, insurance etc (in fact virtually everything to do with money), unfortunately a self employed financial advisor dealt with their finances.
It was not until last year that I found they had 5 direct debits payments going out every month for home insurance! When I found out what had happened, we managed to get some of the money back from the insurance companies.
Also, my parents assumed their previous mortgage they had for numerous years was a repayment mortgage (they believe they were orginally told that), however it was only an interest only/endowment mortgage and they had to sell to pay the mortgage company the balance.
I had hoped lessons would have been learnt from past experiences, but again, their advisor recommended around 3 years ago that they change the mortgage from repayment (for their new property) to interest only. This went from paying around £550 per month to around £250. My parents are both in there 60’s and I understand the mortgage company needs paying back in 2012.
If they now change back to repayment the monthly payments would be around £800 per month and unaffordable.
Therefore, they have no option but to keep on paying the interest only.
They are trying to sell the property but as the market is not moving that’s not going very well.
They are considering selling to a “sell and rent back” company which is slightly concerning.
My other concern is that they may need to sell at auction in the next 2 years and then have little money to purchase somewhere. At present the property is worth £160,00, with a mortgage for £65,000.
They have asked myself and my brother to purchase the property from them and then for themselves to pay rent to us - this seems the logical choice but it would mean taking on a second mortgage which wouldn’t be ideal for me at the moment.
Is they any other solution which I haven’t thought of?
I do feel they need taking by the hand as I have saved them around £150 per month (thanks to this site) but as my father “hasn’t got time” to change his visa card to a 0% one, he’s paying out £150 in interest per month extra - therefore any money I’ve saved them is lost. It's like banging my head against a brick wall sometimes.

Any help is appreciated.
Chris

*I know many self employed financial advisors are extremely good but I believe my parents were let down by someone who found he could make commission on a regular basis from them. ie: 5 Home insurance policies with yearly bonus.

dunstonh

It was not until last year that I found they had 5 direct debits payments going out every month for home insurance! When I found out what had happened, we managed to get some of the money back from the insurance companies.

You should have been able to get all the money back bar one.

I had hoped lessons would have been learnt from past experiences, but again, their advisor recommended around 3 years ago that they change the mortgage from repayment (for their new property) to interest only. This went from paying around £550 per month to around £250. My parents are both in there 60’s and I understand the mortgage company needs paying back in 2012.

The adviser should have documented what repayment vehicle was being put in place to ensure repayment of the mortgage. You should ask the adviser for copies if your parents havent got any copy documents.

hey are considering selling to a “sell and rent back” company which is slightly concerning.

I would say very concerning as this area is a minefield as it is unregulated and all deals favour the company buying.

Is they any other solution which I haven’t thought of?

The adviser may have culpability here for arranging an interest only mortgage. However, before you go in all guns blazing with a complaint, it is worth discussing it with the adviser as your parents could have said things which have been documented by the adviser.

*I know many self employed financial advisors are extremely good but I believe my parents were let down by someone who found he could make commission on a regular basis from them. ie: 5 Home insurance policies with yearly bonus.

The employment status has nothing to do with the quality of the adviser. The key to quality tends to come from those with higher qualifications and being independent. Self employed independents do tend to be a little higher in quality as they take on personal financial responsibility for their recommendations unlike employed advisers or self employed tied agents. Knowing you have to pay for putting complaints right does tend to sharpen the mind a bit.

As an adviser was used there is consumer protection for bad advice, if that has taken place. So, speaking with the adviser is the logical option here.

CLAPTON

One needs to see the full picture.... their income and expenditure and the details of all their debts. And if they are in their 60's then what income will they have when they retire.

margaretclare

Hello Chris

I don't know what to suggest, and I'm no expert but - you're to be commended for trying to get your parents to be less naive and to see the 'error of their ways'. Also, good on you for not learning those appalling ways of dealing with personal finance that you could have picked up from your parents!

Some people are just like babes in the wood. What to say about a man who 'hasn't got time' to make changes that would save him money? If he hasn't got time, a few minutes a day, to deal with personal finance then what the h*ll does he do with his time? And what about your mum? No, don't tell me - she leaves it all to him?

It may not necessarily be the case that the mortgage needs paying off in 2012. It may be possible to remortgage, again interest-only, and keep on paying it for another period of years.

I say this because it's the option I was faced with a few years ago. I had an interest-only mortgage to buy this place back in 1990, with a PEP running alongside it as a repayment vehicle. Unfortunately I was widowed and made redundant 18 months later, in my late 50s then and I scratched around for a few years doing whatever jobs came to hand. I had no option but to cash in the PEP and use it to live on. I was worried that after the 15 years from 1990 the mortgage would need paying off, and how to do it? I went to Abbey (who had taken over the mortgage company I was originally with) and was told that I could continue with another interest-only mortgage or change to repayment, which would have been paid off when I was 83. In fact, my second husband and I decided to go for equity release. We released 25% of £140K which paid off the original mortgage, and we now have an equity release 'lifetime mortgage' which will be paid off only when the second of us departs this mortal coil, unless we sell up and move out before then. We did this just before interest rates started to climb back up, and we did it because, although we didn't particularly need the money, we didn't fancy going on paying a repayment mortgage until we were 83 just in time to die and leave it to someone else! Also, we are not hung up on the idea of leaving an inheritance behind, which is something that must be considered.

Just a few thoughts, HTH

chrisjoanne

Many thanks for a very quick reply. I realise Monday mornings will be a busy period for many people. I think I'll get them to make contact with the advisor again. - Cheers again.

jamesd

chrisjoanne, do consider that while they can't afford switching to a full repayment mortgage, they could start saving or investing the amount that they can afford. That way they will have some money available when it comes time to arrange a new mortgage, around three to six months before the current mortgage deal ends. That money can be used to reduce the value of the new loan.

It's also possible that they could set up regular overpayments of mortgage capital without switching to repayment. Whether this is possible depends on the mortgage deal.

Purchasing the property from them at full market value and having them pay market rent would be a reasonable solution if it's affordable. It won't help with inheritance tax because they will still be living there but at this property value that doesn't really matter. Chances are that they would appreciate the extra income that they could get from releasing the full property value instead of just the mortgage portion.

If your brother is able to purchase half of the property he could do that now and that would clear the mortgage and leave some additional capital for them to invest to produce an extra income to use to pay the 50% rent on his interest in the property. Then you could buy the other half later. Or you and your brother could buy 25% each to clear this mortgage and consider more later.

Or one or both of you could buy a sufficient portion of the property so that your parents could afford a repayment mortgage on the rest, while paying rent for the portion that's been sold. Once the current mortgage is paid they could then buy back the sold portion if that seems desirable.

From the sound of it money is quite tight for them so their interests may well be best served by selling and renting from you and your brother, then investing the proceeds to produce an income. Provided they use a good mixture of investments and not only savings accounts they could take 5-6% of the property value as income and also have the capital grow enough to keep up with inflation.

These aren't all or nothing decisions, so you can select the mixture that's sufficient to do the job. Partial sale now and complete sale later may be the best mixture.

EdInvestor

chrisjoanne wrote: »

My parents are both in there 60’s and I understand the mortgage company needs paying back in 2012.

They can always convert the mortgage into a lifetime one via equity release at that point if they don't want/can't afford to keeping paying the interest.

The interest will then compound up against the value of the property and loan is repayable on their death/departure for care.They will never be asked to leave the property ( they still own it) unlike with sale and leaseback (Avoid!).

Always use a SHIP member for equity release, which is regulated.

www.ship-ltd.org

missile

Quote:

Originally Posted by chrisjoanne
My parents are both in there 60’s and I understand the mortgage company needs paying back in 2012.

Do not rush into doing anything. As has been suggested, speak to the financial advisor. He may have good reason for whatever he advised, but it sounds like you don't think so. Your father would have to be very niave to think he could change mortgage, paying

£550 per month to around £250

and not realise why.

If you and your brother do buy their property and rent back, you will need to consider capital gains and tax liabilities you may incur.

Rather than changing the mortgage which may be difficult at present and incur yet more fees, you could get them to save money in ISAs etc to put toward settlement of the capital when the mortgage is redeemed.

chrisjoanne

I really can't believe the amount of replies I've had from my 1st post this morning. I'm rather touched that you've all added something for me to think about. This site shows yet again how much people really do want to help each other. I'll be contacting my brother tomorrow to inform him of what has been mentioned on here. Many thanks again. Cheers.

green1970

Another option which I believe is offered by the Halifax is a Retirement mortgage, an interest only mortgage for 25 years or sometimes longer. If they will be getting a reasonable sized pension and the interest only payment is still manageable in retirement, that might be something to consider, especially with a long term fixed rate.

If you can convince your dad to do the 0% credit card switch, they could overpay by £150 per month and gradually chip away at the capital outstanding on the mortgage. May take a fair bit longer than 2012 but it could be do-able.

Of course, if their retirement income is going to be very low, this may be a non-starter but it's another thing to think about if that's not the case.

margaretclare

green1970 wrote: »

Another option which I believe is offered by the Halifax is a Retirement mortgage, an interest only mortgage for 25 years or sometimes longer. If they will be getting a reasonable sized pension and the interest only payment is still manageable in retirement, that might be something to consider, especially with a long term fixed rate.

If you can convince your dad to do the 0% credit card switch, they could overpay by £150 per month and gradually chip away at the capital outstanding on the mortgage. May take a fair bit longer than 2012 but it could be do-able.

Of course, if their retirement income is going to be very low, this may be a non-starter but it's another thing to think about if that's not the case.

This could be a good option.

Certainly, I found in 2002 that Abbey were quite willing to allow me to carry on with another interest-only mortgage even after the original 15 years had expired, or convert to repayment, whichever I preferred.