Do we help PIL buy a house..?

[OffPointe]

Pil have been mortgage free for many years. They would like to move to a more expensive area. There is a shortfall between their house value and that of a similar place in the new area. Their place is already pretty modest so no ability to 'downsize'. So, they have proposed using some savings then using the Homewise scheme to bridge the £ gap. As I understand it, a company provides the additional funds and therefore owns part of your property, and when you either move, die, or move into care they take a further chunk of equity.

Dh and I thought there must be a better way for them to arrange this... Dh is worried that because the house price and their equity is really low they would essentially be giving up control of where they live as they would never be able to afford to move again. They have moved a lot, although they say this is a final move (they said that last time. And the time before come to think if it!). Also, they have always been very frugal and almost morbid in the way they speak of dh's 'inheritance'. We have always told them we would rather they spend savings as they see fit to enjoy their lives, and they did so to move a lot closer to us a few years ago.

After speaking to our IFA we are thinking of proposing to help them buy the house, thus avoiding any schemes. There are various ways of doing it, but apparently the ideal in the circumstances would be for them to provide the equity and further deposit if they can/wish, and us/dh to take a small specialist mortgage for the shortfall. We would own the house, pil would pay for the mortgage. We would make it clear that in all practical ways outside of its purchase it is their house.

I'm just wondering if we have thought through all of the potential problems properly. It all seems easy in theory but I know this is the kind of thing with all sorts of potential drama..! I am happy to be able to help them but would hate for it to cause problems and we need to prioritise our own family and they would want us to! I think there's a 50/50 chance they'll turn down the proposal outright...

Relevant information:

Dh is an only child and we all have an excellent relationship. They helped us with a deposit for our first house.

They are their 70s in good health. They have a pretty good pension income.

The mortgage would represent approx 30% of the house value and would probably be interest only. It would be half the size of our current mortgage.

Our house is of much higher value than theirs and we have no intention of moving. Our mortgage is for approx a third of our house value.

We have a good savings buffer and are very comfortable in our current set up, although in no position to cover their shortfall (not that they'd ever accept it.)

We are in our 30s with two children.

We have discussed the possibility of doing some work on our house in a few years time, but it's a "wouldn't it be lovely" idea rather than a necessity. I think we would still have capacity to extend our own mortgage for this but wouldn't choose to do so for a while yet.

Thanks if you've read so far - let me know what potential disasters I'm missing!

How much did they gift you as a deposit and how much help was it at the time?

What I'm thinking is could you make a gift?

We bought a lovely renovation home which really didn't need it from a couple in their seventies. They were here 18 months. They have moved Three times since then in six years. New kitchen bathroom every time.

I'd get expert advice if you're determined to go ahead

Honestly on rereading your OP, I'd stay out of it.

They have a way to pay for it without your financial input, if in the future they want/need to move again, then you can think about what that looks like.

If they are struggling financially then I'd help with some shopping or bill costs, not tie up your savings for an unsure outcome.

Don't forget that if one of them died then the remaining person's pension might be very different.

This is a good idea if you can afford it.

Sorry but what you are proposing is standard deprivation of assets and there is no financial gymnastics that would change this. You should keep your finances separate because if either of your in laws need to pay for care they will come after that 70% equity (that is your in-laws after all).

We actually gifted my in laws money to move to a more suitable home and the solicitor explained in detail how we could not take a bigger percentage of the home that we had gifted - So you could own 30% of the property if that is what you put in. You would need to update both your wills though as this can get complicated. You couldn't (or maybe shouldn't) charge your in laws the interest though! The money trail was well recorded because it has to be when buying a property! And we didn't want any part of it! You are going to struggle with this from the beginning!

I am 65 and wanted to move south, I moved to the NE with my late husband's promotion in 1999. I enquired about a special 'reduced price' scheme for older people property in Devon which was being sold for £30K less than market value if I accepted their terms. I sold and was in rented so I'd pay them £230K cash, they'd pay the additional £30K. The £30K they loaned me would have resulted in them reclaiming £130K back when I died/sold, I've not done the maths but the interest rate is ridiculous. Without any family, I might have gone for it, but I have two lovely kids and want them to have an inheritance if possible. I've ended up resigning myself to living out my life in the NE, making the most of it. Hopefully the government will still push through the £85K care cap in October 2023 if I do need care.

I'd recommend going on the House Buying, Selling and Renting forum on MSE, there are lots of knowledgeable people on there. Good luck to your IL's, I hope they can move somewhere nearer to you and be happy.

I think I'd look on it as an investment and put savings in; I'd have it written up properly as a charge over the house to protect your investment. Include compounding interest to protect you from inflation. Halfway between zero and whatever the company would charge. That way there is no deprivation of assets/ 2nd home stamp duty etc. Your parents would own their home but you'd have an interest in it. You would have to pay tax on the interest when recieved but that'd be balanced out by the property not being subject to CGT when sold.

I’d stay away from any schemes that give a third party (by which I mean a business not a relative) a share in a home. Whilst not quite the same thing we had a total nightmare with an equity release company that MIL went to, without consulting anyone else.

She released £20k of equity to buy herself a new car, pay for some bits and pieces - don’t get me wrong we don’t begrudge her those things but wished she’d talked it through with some one else first.

10 years later she had a series of falls which meant she had to move into a flat as she couldn’t cope with stairs. She was stuck in hospital so we didn’t have time to sell the house and the plan was to rent out her house and use the rent from that to rent her a small ground floor flat and give her some additional income. Unfortunately the terms of the equity release stated that the property could not be rented out, so between us and a few family members we had to scrape together the funds to buy the equity release company out and by this time their interest in the property was now worth £57k!

We paid the money and had contracts drawn up to state that we had an x% interest in the property for when it would eventually be sold.

That’s all a long winded way of saying if you can avoid them using this company then I would.

Can they not buy the property in their name (avoiding second home stamp duty) and you gift them the extra funds which translates into a % interest in the home. That way if it needs to be sold for care home fees in the future your money is ringfenced.

Ok. It seems my hesitation is there for a reason, thanks all for putting it into words. It's so difficult isn't it, they have been comfortable and helped us a lot over the years and now the tables have turned and we're in the stronger position and it's hard to navigate! We could potentially return their original gift to us, it would be approaching half of what they need. We'd either have to clear our savings or extend our own mortgage to do so though and I'm not sure they'd go for it anyway.

Sorry to here about your situation Salome61 ☹️

Honestly doesnt sound like you are helping them- sounds like you are trying to asset strip them

Should you really be enabling this move? They seem to have a habit of bad decisions when it comes to housing.
The most helpful thing may be to get them an appointment with your IFA.

It's really not that Manifestation, but I understand that's a possible conclusion based on the scenario. They are retired professional types in their early 70s and the dynamic here isn't us fleecing some vulnerable oldies. More trying to avoid them tying themselves to a company and property which will ultimately decrease their financial independence and possibly lose them money (and yes, us if inheritance is ever involved, but we do not expect or need it). I'm doing my best to get my head around the possible scenarios here, including committing to things potentially to our detriment. They are very independent as are we, and both parties are financially'comfortable', just not outright rich enough to do this easily. Anyway, you're all confirming my sense that this will be ill-advised so we'll look into it further but it probably won't come to anything.

It's not up to you to sort out the mess that two "stubborn and headstrong" people have made.
Can you talk them out of buying a bungalows because they re very expensive. Conversely, flats in older retirement properties tend to be cheaper. You also get ready-made friends&neighbours and someone to do all the maintenance jobs. Be warned to check out the Service Charges and what happens with regard to Exit Fees when they (you) sell up.

Regarding retirement apartments, someone on MSE has sadly lost their parent and the Macarthy and Stone flat isn't selling. He/she is still having to pay the £5K per year maintenance charges.

We have help to buy which means the gov own 20% of our house (repay if we sell or die). Yes it is frustrating as the amount we will repay is more than we borrowed but we are enjoying living in 100% of the house and it made the house/area we love possible.

I think if moving close to family is important to them then the finance option they were thinking of isn't a bad idea. Especially if there is a crazy neighbour, that can be very stressful.

It's very difficult to get people to accept that a different housing type might be more appropriate for them as they age.

We were delighted when DPs bought a one bedroom flat near the hospital a number of years ago, as thought they had earmarked it as something to move into when the house became too much for them. But no it was just so they could get a higher interest rate than the banks could offer. Fast forward to now and they are struggling in their 4 bedroom property with garden.

With the best will in the world you can't force people to make sensible decisions. All you can do is point out the better options. I think encouraging them to have an appointment with an IFA is a good idea.

That's why older retirement properties are cheaper. Don't get sucked into buying a shiny new one!
You need to research carefully though; some properties (mentioning no names but you know who they are) are better run than others eg some are profit-making, some are caring charities.

@OffPointe - could/would you consider building an annexe next to your house for them?

THIS ... this happened to my Nans friends daughter. Nans friend lived in McCarthy Stone, died, flat took 3 years to sell and cost the daughter £18k in fees for monthly maintenance and daughter sold the flat for 90k less than it was bought.

And then have to sell it to meet care fees if built with in laws money?

We have recently moved DF from the north to a bungalow opposite our home in the south east. Same situation in that the southern property is worth more, despite being much smaller (much to his intense annoyance).

The way we did it, was for him to sell his own place and buy 50% of the new bungalow with the cash. We then increased our mortgage on our own house, saying it was for renovations (which was partly true as a small chunk of the increase did go on that). We then used that cash to buy the other 50% of the bungalow. Myself and DF are down on the deeds as ‘tenants in common’. I have a brother, so it was important to protect his share of any inheritance. When DF shuffles off this mortal coil it should be straightforward to sell the bungalow and divide the proceeds.

Have they looked at retirement apartments instead of bungalows? Bungalows cost more as they are few and far between and if one of them dies a retirement apartment should still be suitable of one of them on their own.

Sorry I see apartments are being discussed. The ones my mother owns sell very quickly. but they aren't McCarthy and stone, those are way overpriced and the annual costs are too high. Shop around.

I have read the thread and I agree complicating factors are:

Your inlaws giving up ownership of their home equity to you for only a 30% loan from you - which you are asking them to pay the interest on anyway

Second home stamp duty for you.

Dubious/dodgey whether you are landlords and need landlord insurance/ annual gas checks/ to declare each year on a self assessment. Who will pay for maintenance if you own 100% of the property?

I agree with the poster highlighting the danger of divorce and add the danger of bankruptcy or financial distress. If either you or your partner died or were ill and unable to work how would this all work? You may not be able to claim benefits while owning second property.

Yes to capital gains tax for you. This would be owed on the difference in value from when you buy and when you sell less annual exempt amount and deductions.

What if in laws continue to want to move. Do you refuse or keep paying the second home stamp duty again and again? Gift them back their equity?

My understanding of deprivation of assets is that homes given away need to be genuine so for example in laws paying you a full market rate rent each month - pretty unlikely to be OK with them. Otherwise they have given the house away but not really.

I think the simplest way if you want to lend them money is to borrow it and have a second charge registered against their property to safeguard your money. There will be lenders that don't allow this so you would need to ask advice from a mortgage broker.

If it still exists the shared ownership scheme used to have "shared ownership for older people" which said once they own 75% there is no rent to pay on the remaining part. Even with traditional shared ownership I think you can use housing benefit to help pay the rent part if your income is low.

Good luck coming up with a solution.