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?

Personally I think it's a bad idea - if your mother has debts she should sell up,clear them and either rent or buy into a shared equity scheme ideally somewhere future proof (single storey, suited to care adjustments) as we never know what will happen. Parents have to take responsibility too

Your not screwing your sister over. If you don't go ahead your sister gets nothing, you can't screw someone over nothing. Ultimately it's up to your mother if she wants to take the risks already mentioned. She will need to go to a solicitor and also get financial advice, but if she agrees and you agree then you are both consenting adults. Parent's gifting their property in full or at a reduced value is not as uncommon as made out here. I know several people who have done so for reasons not disimiliar to yours. Most of them think that equity schemes are a huge rip off and would rather gift it to their children and have a liferent in the house.

As far as downsizing not being an option, don't offer to help and she will have to

I honestly think you need to speak to a lawyer as well as a mortgage broker to properly understand both the tax and legal situations / implications that could arise. I don't have much of an opinion about the rights and wrongs vis a vis your sister but I think all parties should be in full position of the facts before doing anything.

We have recently done our wills etc and it's actually all quite complicated as to who would have a claim on assets etc. in various scenarios. You definitely need professional advice for your own protection as well as that of your DM / DH and Dsis.

Yes we all know downsizing would be far simpler but we cannot force DM to downsize - the house is in her name for her to do as she pleases! She would really be unhappy if she had not done anything possible to keep the house which is why equity release is much more suitable for her. I don't see how she can be forced to downsize she will just give the house away even if she got not much cash out of it as she is not bothered by that aspect!

Thanks randomusername01 so what would you propose is a fair arrangement with DSis? It seems everyone else thinks she is entitled to half regardless of no risk taken?

So you say that the equity is 50% so that means that the mortgage is £175K. What did your DM think was going to happen if she never paid any of it off? Surely she should have realised that her pipe dream of staying in this house is unrealistic. You say she has no life insurance. I can't imagine how that can be true, you can't have an interest only mortgage without life insurance. We have an interest only mortgage and as well as having life insurance we are regularly asked to prove that we have other assets/investment instruments that would pay it off. Why has your MD's mortgage company not been asking her that?

Have you actually asked the mortgage company whither or not they would extend the term of the mortgage? We have a mortgage of over £100K in our late 60s - DH is nearly 70 and we have 7 years to pay it off which we have been doing.

Equity release is also a problem as your DM would be unlikely to get enough to pay off the mortgage as the companies value the properties much more conservatively thus the equity they say is in the house is much less than the mortgage.

I am also not sure how your mother could 'gift' you her house that a mortgage has a charge on in order for you to get a 50% LTV mortgage on it in the first place. I also think she would need to look at her own tax liability on that gift at that point.

You say that the property is in need of repair so if your DM saw properties with a small mortgage on that were in good repair would that not persuade her to move? She could then clear all her debts and have a small repayment mortgage, living in a much more suitable property for her future needs in perhaps a nicer area.

I haven't read the whole thread, but am going against the grain the posts which I have read by saying that I don't think you are mad at all. Why would you want to give money to an equity release company if you can keep it in the family.

I don't believe that there will be all of the potential tax problems etc. If your mother is 60 and well, she is likely to live another 7 years, so no IHT. Also, why would she be regarded as avoiding care costs when there is nothing wrong with her. I do think MNrs are a very cautious bunch sometimes.

But, I would echo others in saying take legal advice and make sure that your mother is separately represented, and also be totally transparent with your sister or it may affect your relationship with her in the future.

DoubleTrouble99 well she did not think that far ahead and thought equity release would be fine? As is the situation now I suppose. Well she tells me she has no life insurance so I am just going off that.

They will not extend the mortgage as far as DM says. Probably also due to the existing debt as well as age?

Yes we would need to look into tax implications of her gifting assets for sure.

When I say repair I don't mean anything serious but has not been touched for 30 years. She is not interested in a nicer place, not a factor for her at all.

If you are in UK your DM needs to log into www.gov.uk website using her National Insurance number to see what date her state pension will be paid and how much. Then ask if she will have any private pensions. Does she have any income now or any savings or just debts ? Why should she live rent free, she could live another 30 or 40 years, plus inflation price rises. You must seek financial advise soon.

Yes of course DM would have own solicitor in this process and DSis would need to understand the situation.

It does seem a mad plan that could go wrong in so many different ways.
I am not financially savvy and I rent so I don't know all the ins and outs of buying.
But PPs have made a lot of good points, I don't think you are going to change your mind no matter what anyone says.
It does seem silly to put your future on hold and have a lot more financial responsibility to pay for when you might never benefit in certain circumstances and your DM earns more than you.

She already has her state and private pension in addition to salary. She has some savings but does not want that near any property as she does not believe in investing in property i.e. repaying mortgages!
Well of course we are happy for her to live rent free forever if we are paying the mortgage, the aim being for us to pay it off.

HalfwayCrook - from your comments, you don't seem to understand how IHT works, so should seek professional advice on that for the sake of clarity (albeit the value of her estate as you describe it, particularly given her debts, does not sound particularly substantial!).

You are being very naive about the number of emotional and financial pitfalls involved in your proposed plan - maybe you are more like your dm than you think?! You don't know how reasonable anyone is going to be in reality over the years - families always start out blithely sweeping potential issues of this sort under the carpet, to their regret later on when they realise that their family ties are the reason for everything having become so unpleasant and bitter and were not the protective blanket of love they thought they would be... This sort of arrangement can totaly ruin family relationships, with bitterness and resentment from all sides. A fractious old woman who insists on living in the family home and letting it fall to bits around her ears, pulls every emotional blackmail stunt in the book not to be forced to move out or let it be cared for in the way the owners want, who cares fuck all for whether it increases or decreases in value, and a sister who thinks she may be being ripped off, until she can use it as an excuse not to help out when mother becomes frail and senile, does not a happy family make. You may not see it like this from your insider's perspective at the moment, but I've seen 4 families make similar arrangements for similar reasons over the years and 100% ended unhappily. Your dm is being self-centred and that is not a good start to this venture. You also are considering this from the perspective of financial gain versus emotional strain, and are wrongly hoping the financial gain will be greater than the colossal emotional strain!!! Do this as a sacrifical act of live for your dm, or don't do it at all. Tbh, though, it doesn't really sound like she deserves the sacrifice, given her don't care attitude to everything except for not having to move house.

• love, not live!

Well it seems odd that people are saying that this is a terrible risky idea but also at the same time saying that DSis should share the equity despite not wanting involvement or liability? How does that make sense?

Because she is one of your DM’s two daughters, and therefore in the normal scheme of things she would expect to inherit an equal share of her estate, irrespective of other considerations.

I would suggest then that you actually look into your DM's affairs in much more detail. She is obviously not especially astute so you really need to do much more than just take her word for things long before you take this any further.

It’s clear you’ve got your fingers in your ears about this as well as taking some very incomplete at best and wrong advice at worse from a mortgage broker.

You need proper legal advice, and documents drawn up. It’s costly and complicated and from how you present on here, completely over your head x

I'm not going to rehash all the very sensible replies here pointing out all the pitfalls save to say:

If something seems too good to be true, it probably is - and if this solution were really a sensible one, it would be commonplace and loads of people would take advantage of it. Apparently it isn't and they are not...

I have had first hand experience of a similarly bonkers plan to "help" family members in dire financial straits. It ended with my mother and grandmother barely being on speaking terms when my GM died.
Money and family are a truly toxic combination

And all this for what is still a hypothetical amount of money!

If you really need to help your mother stay in the house she is in, you may want to try looking into Later Life Lending products. They are new to the market, limited providers / brokers but they are NOT equity release.

Above all, I would still advise stay out of it...

And now it turns out she has savings. As well as more money coming in a few years that would pay off her 75000 debts. Not to mention 175000 equity in a property and potentially 40 years to live and save up her state and private pension.

Her estate will be subject to tax. You are thinking it's a simple process. It's not. You assume she won't need care or become ill. That is naive at best.

Let her sort out her own finances and if you even thought it was fair on your sister you'd have already asked her her thoughts.

She'll resent you eventually and it's not worth it. As will your DH when he has to live in a one bed flat with DCs or sacrifice the area you like to live in.

But you're going to push for it anyway because it's all about the money.

Have you actually explained to your mum that if she takes out an equity release, he house will be returned to the bank and no longer ‘in the family’ and you and your sister won’t get a penny?

The best case scenario here is your mum to wake up, sell the house and buy a small retirement property. She can use her savings to pay off some of the debt (WHY does she have savings when she has debts?!?!?!) and when she dies, you and your sister will inherit her new property, and split the money.

To be honest, I imagine you are going to charge ahead with your ridiculous plan (until a road block comes up when you see a financial adviser/lawyer) because you are convinced you are oh so clever and this is true Perfect Plan.

Intelligent people who are good with money do NOT think like you. Aside from the fact that they would have seen all the pitfalls by themselves, they would certainly heed the warnings of 50+ unbiased strangers and rethink.

The fact you are so determined to go ahead leads me to believe you are extremely foolish, and thus I can’t be arsed to advise anymore. It certainly sounds like the apple doesn’t fall far from the tree financially! I bet your mum was convinced that all her previous terrible financial decisions were the ‘perfect solution’

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Do you want to support you DM living rent free for possibly next 30 years? That is really bonkers OP.

I really think you'd be best advised to step away from this plan completely.

This idea has disaster written all over it.
I would step back from your mother’s financial life and keep well out.

Quite apart from the fact that you seem to have very little idea about the complexities and pitfalls financially, there’s the whole emotional side.

This obsession with keeping that particular property ‘in the family’... is it really worth it when there’s every likelihood the family will end up at war over this ludicrous situation?

I have to agree with others, this seems a bad idea to me.

I really cannot see anything good coming of this whole plan.

Wow you are completely enabling your mothers financial recklessness.

She has savings and separate means to pay off her debts in the next couple of years? Why can't she use her savings to help pay down the debt now and then see if she can extend the mortgage for a couple of years until her debts are clear?

She's holding you hostage by the inheritance and of course she's happy with the plans.

You need to give your head a wobble op. This is madness. The only person it will benefit is your mum.

Your dm has a bloody cheek, pretending it's important to her to stay in the family home when she doesn't believe in investing in property, HalfwayCrook. Esecially a property that you imply is in a bad state of repair. Frankly, I think she just doesn't like the thought of change, stress and effort and favours sticking her head in the sand and leaving her arse out to fart in the face of her relatives...