AIBU to take all the equity?

[HalfwayCrook]

So DM (working, healthy, in her 60s) has always been terrible with money and has a lot of debt hanging over her. The family home which has been on a 100% LTV interest only mortgage is coming to the end of its term next year and due to her age she will not be able to get a re-mortgage without getting involved in some dreadful equity release scheme or some such.

There is no question of downsizing or selling the property as she will not hear of moving house. The plan I have come up with is for me and DH to buy the family home for the price of the mortgage (i.e. being gifted £175k of equity which has been gained through price rise alone) and to then pay a repayment mortgage allowing DM to live there rent-free. This would mean that the family home is kept, the equity is not lost (particularly to pay off her other debts) and that she would free up significant monthly income by not paying the mortgage to pay off these other debts.

The issue is that I have a sister and I am concerned that she may see this as me taking away any chance of an inheritance? For background, although we have similar salaries she would not have the financial capacity to do this as she has just bought her own house (after living in the family home for 15 years not paying rent, bills or food). When she was looking for properties, I encouraged her several times to buy the family home instead but each time she refused (it is not in the best state of repair however perfectly liveable). As far as she knows, the family house is written off and is to be used to pay off debts etc. Also by DH and I taking this on, it will mean we are unable to upgrade our own home (living in a 1 bed flat) which means that we are taking on a big hit to our personal life e.g. less space to start a family. It has taken considerable stress and research in order to plan this and she would never have put forward this herself.

I feel that if we pay into this for say the next 20 years the proceeds from the resultant sale should be ours? However if by some terrible misfortune DM passed away in the next 5 years I accept that it would be best to share with DSis – perhaps two thirds to one thirds? AIBU?

...but refused to get involved with DM and her finances.

I suggest you do the same.

Too messy, too complicated - anyone with any sense can see that this will go horribly wrong.

Hi SnappedandFartedAgain So you can buy a house this way for just the value of the mortgage, it is called a concessionary purchase. We would only be doing this in that manner in order to get a 50% LTV mortgage thus paying likely half of what you suggest. We are at early stages of our careers and it is feasible for us financially even currently. Bear in mind our plan without this would have been to sell our flat (no price rise) and get a huge mortgage in the next couple of years in order to achieve a family home.

We cannot get a rental property as a) we have no motivation to do so and b) we do not have 25% deposit on top of the 175k c) that amount of money is half the value of a property and can't get anything for that figure d) that does not help DM in any way and e) if we do not do this plan we WILL be putting all our affordability into a massive family home instead (will only suffer/stay put if it benefits DM and us in some way!)

Thanks for noticing that last point. When I said terrible with money, I meant more along the lines of not saving, getting a 100% mortgage, never putting anything towards the house in terms of repayments even when it was easy to do so, being extremely generous to family (and others). The debts are a result of one mistake but she was in denial and did not want to worry anyone so they were covered up to some extent. Only now DH has uncovered the extent of the situation through discussion and now we have been brainstorming ideas to take the property out of DM's name whilst letting her live there.

Hi lethaldrizzle well we wouldn't WANT to live in her property unless we had to i.e. unable to move out of our 1 bed flat or had a disabled DC etc. Her house is about one hour away from ours.

I don't think moving in with her would be viable really, would people really do this in a small house?

We are in a position to buy our own home however our area is much more expensive however we will not see any price rise in our situation. DM's house is in an area which will see lots of growth. We will still be able to move out of our 1 bed if things continue as they are with no surprises however will not be able to have a 'proper family home' with garden etc which otherwise we may be able to stretch to.

RedGlitter it isn't a big mortgage, that is the point! In terms of outgoings per month it won't affect us. But of course if we weren't paying her mortgage we could put that money towards an even bigger mortgage for ourselves. We will be spending this money either way.

Can people leave the DM getting into more debts angle, that is very unlikely to happen, it just has to be accepted that I know the situation better.

She will consider downsizing if she absolutely has to and there is no other way to stay in the property. She will definitely consider downsizing if my finances are involved in any way and I tell her that it needs to be done from my perspective. That is not an issue. DM is extremely soft and generous (part of the problem!) i.e. DSis living there rent-free for 15 years getting meals cooked for her etc whilst spending a huge salary on socialising!

Yes LethalWhite we have been seeing it as 'losing' the equity currently in DM's property, just trying to think of any way around that hence this thread.

We would not be living in a 1 bed flat for 20-30 years unless disaster struck. We can either move to say a 2 bed terrace or buy a bigger ex-council flat or if we absolutely have to, swap places with DM OR just buy in a cheaper area (for example near DM where the price of our flat will buy a family home).

Hi DaisyChain sorry but DM's stubbornness really is not relevant in that context. Once we are involved she would relinquish all control in that regard and just do as we suggested best. I am tempted to buy it as a concessionary purchase and just sell it myself and force her to downsize giving her the equity but that would be manipulative and mean.

Her finances will take 2-3 years to sort but the end of DM's mortgage term is imminent. We don't have a few years working on this with her, we have already tried previously (the times when DSis was looking to do what we are suggesting to do). So timing is such that she needs a bit of help now and we are potentially able to help as we are 2-3 years off buying our family home so have a lot of affordability to do so which is where the idea came from. Of course now we are considering abandoning the family home idea which is fine with us as long as we get some sort of financial benefit from that sacrifice.

This thread is odd. The original question related to Whether OP should take all the equity in her mothers house and leave her sister with none.

People commented that seemed unfair. OP got defensive said she was doing it anyway because she was being generous to mother. People still said it was a bad idea OP ignored them.

OP seems angry that sister got to live in family home rent free, and now wants ownership of family home as some sort of compensation.

All very odd - why ask about sister when you don’t really care?

My parents sold me a house for indermarlet value. They had to pay tax on the difference.

Listen to what all of the PPs have said. This has fucking disaster written all over it. I'd understand if this were a much beloved family home to you but it's not.

Harsh as it sounds, your mum needs to face reality. This is how you and your sister can help, by making sure she gets the right advice and is able to stand independently.

The original AIBU was only a small part of this whole scenario you are right. It was an angle that I had only just considered so wanted to work out what would be a fair arrangement on her part based on our input compared to hers regarding helping DM.

I am not particularly angry at DSis living there rent-free but have been a bit disappointed at her entitled personality over the years whilst everyone else has to fend for themselves! DM has always been too soft to ask her for any contribution despite DSis big income.

Bodicea thanks very helpful could you tell me the name of this tax so I can look into it?

It is a much loved family home to me for sentimental reasons but I would not particularly want to live there myself due to the area.

Completely agree with the last poster. How many people need to tell you this is a really bad idea before you actually take it on board?

Mixing family and finances in this way is a recipe for disaster. Especially when one party is so bad with money they've amassed a huge debt.

The thing that I keep coming back to is that you’ve said you’ve had financial advice and they haven’t mentioned any red flags?!

deprivation of assest this will absolutely gut you.
house values/interest rates there is a possible hard brexit coming. You would be insane to take on such a risk
divorce even the nicest chap won’t continue supporting your mil post divorce.

Your FA has not given you good advice at all. That none of these issues have been discussed is catestrophic.

What happens to the £75k of debts? How will they be paid off? Because I would have thought a gift to her daughter was at risk of being unpicked by her trustee in bankruptcy if it gets to that point - would you pay that?

Terrible idea generally. Your mum is only in her 60s and has made a number of dreadful financial choices, including it seems a decision to have an IO mortgage and no means of paying it off except, usually, people in those circs need to accept they will downsize.

Also you talk about having a family but apart from vague talk of having payrises which let you pay her mortgage and yours and maybe move to a two bedroomed flat, don't factor in the cost of either dropping a salary or childcare - have you included those numbers?

I can see how you have gone in circles and come up with this plan,OP - and I don’t think you are doing it primarily for underhand motives towards your sister as some PPs have suggested.

I agree with PPs, though, that the plan has so many holes in it that it isn’t really feasible .

The major problem for your mother atm is the ending of her current mortgage term and the unlikehood of her getting a full replacement mortgage. She certainly would have problems getting a straightforward one with an existing large ( secured ? Unsecured? ) debt that you have now recently said she will be able to resolve in the near future.

Would that mean she would have closer to the full notional £175K available for an onward downsized purchase - possibly with a small mortgage, with a small LTV ratio ?

My DM, had a similar problem when my DF died - in 60s but long retired as had been caring for him - left with a large family house that she loved and wonderful neighbours etc, but a very small pension and less capital than she had thought ( another story - financial ignorance rather than fecklessness) and unable to service the remaining, already extended, mortgage.

We were unable to offer financial help at the time ( 2 young DCs and a big mortgage ourselves) so after a period of handwringing about unfairness of life she faced up to it, sold up and bought a much, much smaller property. Much lower maintenance, much smaller garden, smaller running costs - and much nearer and just as nice neighbours. Very happy there until it had to be sold for her to go into a care home.

And there was an inheritance for me and my brother to share left over - not as much as if she had managed to keep the big house but we had never, ever assumed that there would be anything for us when she died, apart from keepsakes. It’s very dangerous, IMO , to plan based on being a potential inheritor.

You say your DM won’t contemplate downsizing but she doesn’t have to if you are offering her an escape route - one that is flawed from all angles except from hers. The house will be repossessed next year if she can’t magic up the balance due.

Equity release can be a solution to some problems but the market values they work on are very conservative, the amount they will lend is age dependent and having other loans secured on the property may also cause refusal.

I think it would be fair enough if you were to go along with this ridiculously scheme for you to have then payments you made to the mortgage taken into account in deciding the equity. But ultimately that isn’t going to be down to you. If it’s still in your mum’s name she can make a will leaving it to who she likes and even if she makes one in your favour she could change it.

My dad litterally just sold his house whivh he had an interest only mortgage on and used the raise in price (about 150k) toward a new house and got a 50k mortgage.. hes 60..it can be done. Dont take it on. You have your own life to put first. Also, i dont think youre taking her inheritance as such because youre paying for it. If you didnt step in she wouldnt have anything anyway by the sounds of it. But i do think it will cause a large rift that wont be healed easily. Think carefully

Yes deprivation of assets is a big concern. It is a shame as this is not the intention however I am sure they could find a way to construe it that way despite DM being fit and healthy!

With interest rate rises, I still don't understand how this doesn't apply to anyone buying a house now? Except we would have a 50% deposit so getting the best rates. As I said our alternative is to get a very high mortgage on a family home so surely we would be screwed with that anyway if interest rates were to rise?

With divorce, I am sure we can make up some sort of contract if this were to happen and yes DM would accept downsizing in this scenario.

The 75k of debts will be paid off - I don't really want to get into that but they will be!

Yes childcare costs are the type of factors we are looking into but this would situation be the same if we were to take on a double mortgage to get a family home as per the original plan? It takes up the same monthly outgoings. We are fortunate in that we may be able to get heavily subsidised childcare from MIL who is very keen to do so and has a lot of experience.

BakedBeans 47 but if we bought the house of course those repayments and subsequent equity would be in our name? After CGT of course.

Yes! Of course you are. You are basically ripping your mother/sibling off. If you buy the house now, buy it at market value.

I dont know the answer to this - but what mortgage would you get - you are not going to be living there so are you allowed a residential mortgage. You are not buying to let either

The whole plan sounds bonkers. The way you speak about your sister ‘opting out’ is very unfair. You’re effectively trying to take any equity she might (eventually) be entitled to because you want to come up with a hairbrained scheme and she is sensible enough to not want to touch it. You are not responsible for your mother’s poor financial planning and you shouldn’t put your own financial future at risk. living in a one bed flat while paying off a mortgage on your mother’s house is just going to lead to resentment. You may think it’ll be fine as that’s what you were used to as a child but it will seem different when you could have a choice to have more space and a nicer living environment. The logic of prioritising one older person living in a big house and a family in a one bed flat on an ongoing basis is just crazy.

If you do carry on make sure your mother has independent legal and financial advice. By selling the house to you undervalue, there are likely to be implications for her if she ever became bankrupt. She will also become dependent on you to release funds for care etc and would lose an ability to have control over her own finances (albeit she hasn’t shown great judgement). Too many older people stay in houses that are unsuitable. Downsizing makes sense financially but also in terms of futureproofing her ability to live independently.

Awful idea. And frankly your mum got herself into the mess she should get herself out of it without her kids bailing her out to their own detriment.

Plus yes, it's your sister's inheritance.

this would situation be the same if we were to take on a double mortgage to get a family home as per the original plan?
But you would have the benefit of living in a nice family home.
I know you are saying living in a flat with DC wouldn’t bother you (and it may not) but for many people it does and living in a larger space with DC can make day to day life so much easier. When you’ve got kids just the little things like space for their toys, clothes, for them to play, to have their own space when they get older, a garden etc can make a huge difference. It seems sensible to at least keep this option open.

You say your mum wants to keep the home in the family but neither you or your sister want to live there. So, you will likely sell when she dies? Then it won’t be in the family. It seems a lot of stress to go through to not keep it in the family anyway at the end.

You recognise that the most sensible option is for your mum to sell and downsize. You must know what you are proposing isn’t financially wise yet you seem to be continuing to find ways to justify doing it.

Could you take your mum to look at flats that she could buy just so she can properly consider all her options. Often people say they don’t want to move but when they actually see alternatives in person it can change their mind.

I am probably alone in thinking that what you are considering doing isn't totally mad. It is however a risky venture and will limit your ability to get a decent house for the foreseeable future, but if you decide to do that's up to you.
I think your original question was about how/whether you split the equity with your sister.
What seems fairest is that

1. You allow your mother to live rent free
2. The rent she should be paying to you gets directed to her £75k debts and you would need to see evidence of this
3. If you then allow her to live rent free then whatever rent she isn't paying you comes off the equity your sister would be entitled to.

So...let's pretend the market rent is £1k. She then would spend 75 months paying her debts off and you have 'lost' £75k. I would deduct the £75k from the equity, so 100k remains . Let's assume you had paid £10k solicitors fees/stamp duty. I would then think you would share £90k equally with your sister. If she pays off her 75k and lives a further 60 months rent free then you have 'lost' 135 months rents and £10k fees - so £145k. The original equity was £175 so you share the remaining £30k with your sister. Effectively the house and all the equity is yours after 16.5 years.

That would be fairest but Are you really sure you want to tie your money up for this long!