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?

I don't think this is deprivation of assets if your mum is currently well and healthy. Many old people never need any care at all - your money doesn't cease to be yours once you are 60.

Be upfront with your sister and get her to agree or not to it now so that you know what you are dealing with. For what it's worth I see where you are coming from - as what you are suggesting enables your mum to stay where she is - and it's a business transaction for you. Document it properly with a solicitor - including exploring the quotes for equity release as this will show you are not seeking to deprive assets but that there are no other options.

You say the house is in disrepair - is it's value taking account of that disrepair (and will you have to make good).

Good luck. Many people can't look outside of the box - but you need to take professional advice.

Very very odd plan. And as practically every other poster has pointed out completely bonkers.

Why would you put yourself in a situation where you are potentially trapped in a small flat because you are servicing a mortgage for your DM?

Yes there is equity NOW but what if house prices fall?

You say your mum is not interested in the equity. (Which makes her completely bonkers)
You say she is in debt to the tune of £75k.
You say that debt will be paid off soon?
You say she refuses to downsize.
You say she will downsize if you enter this agreement and tell her she has to.

You appear to be blinded by the possibility of inheriting a large sum of money. But that is a purely hypothetical sum of money. God knows what will happen to property prices in the next few years.

The sanest and most sensible plan is to contact a few different financial advisors to sit down with you and your mum (and I would suggest with your sister too) and work out a plan to future proof your mother’s retirement.

Keep your finances and your future separate from your DMs at the moment.

@ballseditupforever but there are other options. Ones that are less likely to emotionally wreck this family.

DM can sell her house and buy somewhere with the 175000 equity. She'll then live off her pensions with no mortgage to pay.

She can use her savings and the substantial money she has coming in a couple of years to pay her debts.

OP and husband can then buy somewhere bigger in their desired area to start the family they want.

Whenever DM passes away there will be the downsized house/flat for both of her daughters to inherit and share equally.

That's not "thinking inside the box", it's just sensible and normal.

And I haven't seen anybody mention the interest that you'll have to pay on the mortgage you take out on this property. If the value doesn't rise much or goes down that will eat in to a huge chunk of the "equity".

OP if you take a mortgage of 100,000 over 20 years at current interest rates you'll pay around 35000 in interest during that time. Interest rates are very likely to rise in that time.

If your mother lets the house continue into disrepair for a further 20 years it'll cost so much to bring it to standard or you'll lose further equity (either way, you'll lose upwards of 25000)

You'll likely pay around 12,500 in stamp duty as it's a second property.

You'll have fees when you buy and fees when you sell. Maybe around another 5000.

You and your DH are sacrificing what could be a lovely family life for your DM who has not shown any interest in protecting this home or her right to live there.

Bonkers (and you'll upset your sister when she realises)

I think what OP is asking upthread is: if it’s such a bad idea and I won’t make any money, why would my sister be upset?

The point, OP, is your sister will be upset NOW as it looks very much like you are trying to take her ‘inheritance’ off her. This will ruin your relationship. And THEN you might not make any money this way at all, in fact you could be substantially out of pocket due to all the reasons listed above. But that won’t repair family relations.

It’s lose-lose.

thank goodness the spell caster is here

I'd maybe give your dsis the opportunity to jointly buy the property with you, so she would be liable for half the mortgage payment and therefore half the equity some point in the future. If she declines and you and your dm go ahead, tjen your sister is entitled to nothing. The house would legally be yours and not part of your dm estate, so no part of your sis inheritance. That's not cheating your sister, especially if she was given the choice to jointly own. I wish other ops would stop framing it ad your dsis rightful inheritance, its not, and as long as your dm is alive and mentally fit she is entitled to dispose of her assets as she so wishes. It's also not illegal to sell a house under valuation neither as another op has suggested.

Actually this seems to me to be such a bonkers idea a spell catcher seems very apt!

thank goodness the spell caster is here

Maybe she has some magic beans to sell the OP?

Ballseditupforever thanks for the advice. Yes the valuation is in its current state there is a lot of scope to improve and extend the property if needed and yes business wise it is a good deal. It is not in disrepair as such just needs a bit of TLC as has not been improved in any way in many years. Just not in an area we personally would like to live in.

Peridot1 we would not be trapped just unable to stretch to a fancy home in our top choice area which otherwise we would. It is just lowering our expectations. Yes financial advice definitely needed!!

I dont think prices will crash to extent of losing 175k and if so there will be bigger problems in this country than ours!

Hello123 if I thought DM would ever downsize I would have considered this convoluted arrangement. Just take that out of the equation as a possibility. She would honestly rather give the house away to anyone than leave. Financial sense does not come into it for her.

You might not think that prices will drop that much but I’m Irish and witnessed the Celtic Tiger effect. A friend of a friend and his wife pushed themselves and paid €500K for a two up two down terrace. It dropped to something crazy like €50K. But they still owed the bank the full amount. You just don’t know what will happen.

Hello1233 you could say that for any property though? At least here it has been bought for half price to start with. I really don't see how prices can fall so much. We would be paying even higher interest on a normal mortgage compared to a 50% LTV one.

Stamp duty will only be paid on the consideration i.e. the mortgage value. Of course we can take off these fees before splitting anything left when eventually sold so that it is fair?

Randomusername01 DSis had this opportunity and declined. She has now bought her own house at full affordability and has none spare to put in DMs house not that she ever wanted to do so.

I initially felt like you that DSis would not really be entitled to a share seeing as she turned down the opportunity herself but people are disagreeing so there must be a middle ground.

As I said if prices drop from 500k to 50k there is much more to worry about than this, it would affect the whole country! I don't see how that is a big aspect in that case nobody would ever buy houses.

Halfwaycrook - yes, but if house prices fall then you are stuck with the properties you've got, i.e. trapped in negative equity, and thus will have a great choice of a 1 bed flat or a run down property in an area you don't like to live in for the next 30 years.

If you both have good jobs at the start of your career, there are far more financially viable and easy ways to make 175k over 30 years. That's the point. And if your Mum has sold and bought another property, you'll get your inheritance IF she dies without needing care, i.e. at the same time as with your crazy scheme. If she needs care and you have the property, YOU could end up paying it all, so be out of pocket! If she needs care and sells her new house, you won't be affected, but won't get any inheritance.

If she has savings then why hasn’t she paid back some of her debt?!

Anyway you’ve made up your mind now but just to warn you that the majority of lenders who provide concessionary mortgages will expect the parent to vacate the property on completion and require the purchaser to live there. The very few who don’t insist on the parent vacating may require you to also supply a 5 or 10% deposit out of your own funds. It’s not as easy as the broker may tell you.

Also just to say that I mentioned above that I had bailed out a parent and took over their mortgage and finances. Despite promising and swearing that they would be able to live within their means, they have run up a huge debt in the last eight years. People who are bad with money rarely change.

Ooh just seen the spell caster - how handy. Weird timeframe though - 49 hours?!

business wise it is a good deal

it really really isn't for all the many reasons you have been told on this thread, by people who have no axe to grind just giving you independent views, yet you seem hellbent on going ahead with it. It is a bad idea with the potential to be disastrous.

One thing I don't understand is, if your mum has savings, why isn't she using that to pay off her debt? doesn't make sense.

This is immoral.
It sounds like you are definitely doing this to take the 'gifted' money.
You are completely doing your sister over, she may be fine now but she won't.... And she doesn't even think any money is in it says alot!
If she went into care within 7 years it WOULD be taken into account, trust me I know this.
Use YOUR money to' better' your housing situation the right way.
Your dm has gotten into this debt why bale her out, it's her issue to sort, SHE did this.
If she doesn't want to move she needs to lie in her own bed.
You sound like you are a money grabber and I wouldn't like to think my sister would be that awful.
Don't do it.

This sounds like the sort of over-complicated plan my lovely MiL would come up with. She has always been the saviour for her whole family, but it also means she is always in charge of everything (and she does okay out of it all financially). I have no idea on the financial and legal side, but have you thought really carefully about the emotional fallout from all of this? Why do you feel you need to save your Mum from the consequences of her own decisions?

Thanks LethalWhite but negative equity could happen to anyone? The plan would be to move out of the 1 bed in a couple of years time.

It isn't about making 175k per se it is about helping DM whilst trying to find a way to get some form of benefit out of it also!

Snappedandfartedagain yes she refuses to touch her savings as needs a cushion for day to day life. I am only talking about 10k here so I understand her.

Mortgage point is a good one, these were the questions I asked the broker and he said no further deposit needed and DM could live there if rent-free. Think only one lender though so yes precarious!

She is bad with money in a naive and over optimistic way not a credit card and more debts way. I am really sure after this experience she will not make any further stupid investments!!

Immoral is a bit far. No DSis knows there is equity but thinks that it is a done deal that it will be lost and would not involve herself in this. So if somehow we were involved and there was equity retained it would be down to our own risk alone. At the moment neither of us are 'due' any inheritance at all due to the circumstances.

I do want to 'bail' her out, myself and DH are very close to her and will do what we can even if we have to take a small hit. She has helped both her children out a lot and is a very deserving kind person despite her awful finances. However if it can be construed as some benefit for us it makes it more attractive to help rather than keep out.

Just a quick look at the HMRC web site would tell you that the broker is wrong. It specifically states that if your DM 'gifts' part or the whole of her property to you ad continues to live in it she must pay the market rent.With that in mind I would severely question the reliability of said broker's advice.