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?

Hmm I would not want to enter into some fradulent BTL arrangement - everything needs to be upfront hence we are trying to get two residential mortgages and be clear with lenders. We don't mind paying the mortgage. DM is very generous with her salary and we have had more than enough free meals out etc at her expense!

Hmm lodger could be a good idea. My instinct is that she would prefer equity release to a lodger.

I don't see why negative equity is more of a consideration here than with any other big property purchase we would otherwise make.

Makes me wonder why you came on AIBU as it's pretty unanimous that this is a terrible idea and yet you're going ahead with it anyway

Is her remortgaging not an option, if she still has decent income?

I think remortgaging theoretically could happen despite her age but the current debts may cause an issue. Also the rates would be awful and she wouldn't really be able to afford a repayment mortgage after being used to interest only. Particular with a very short term or if she retired.

If you look in the inheritance tax section under gifts on the HMRC website. It states you can only give a max of £3k a year.

Yes am happy to pay IHT if it somehow rises over the threshold! I never said I was not.

I think you are putting yourself in such a risky financial situation if you proceed with this, and I echo the advice of so many others.

But also, to go back to your original questions regarding your sister...

my aunt did something very similar with my grand father. all arrangements were agreed before they told my mother... now my mum has to accept the loss of her relationship with them both, as well as her inheritance. She simply cannot forgive them for discussing and planning everything without her involvement, let alone the fact she now has essentially been pushed out of the will. She sees is as a terrible betrayal and unnecessarily cruel. My mum is not perfect, and I wish she could be more forgiving; and maybe your sister will be more understanding. But these are such tricky and sensitive issues you are discussing here, and you really need weigh up the impact this will have on your sister and look past the £175k. Honestly is it worth it?

My grandfather is pushing 90 and my aunt says all his medical care etc has used up his savings since his retirement, so his savings are practically all gone outside of the equity in the house. My aunt believes she is helping him continue to live at home, whilst, like you she must of course have also seen the potential personal financial gain in helping him. But why the secrecy so far if it is a legitimate thing you are proposing and you are not deliberately usurping your sister's inheritance?

If you don't pay attention to any of the brilliant advice you have received so far, then I really do think you may live to regret this decision. All i can add is that before you have any more conversations or do any further investigations on this topic, please please please tell your sister now that this idea is even on the table.
Include her and ask her advice. Then collectively as a family, you can all agree on the best solution for your mother.

I'm confused by this thread... Have I got this right?

• OP's mum is coming to the end of her mortgage term and still owes £75k
• She really doesn't want to move out but can't afford to pay off or extend the mortgage
• OP is thinking about buying the house from her mum for the below-market rate of £75k so her mum can pay off the mortgage
• In return OP will own the entire house, worth £250k+, and OP's sister will inherit nothing because mum no longer owns the house

The difficulties are:

• OP will need to get a BTL mortgage herself to raise the £75k purchase price
• OP's mum is still working and has some savings - not clear why she can't get loans from other sources to (partially?) pay off the mortgage
• OP's mum could easily do an equity release to pay off the mortgage and stay in the house
• OP's mum had every chance to plan for this but didn't so why can't she sell up and downsize

Confusing thread!

I thought the 75k was other unsecured debt 

But why is it any more financially risky than the OP buying a bigger house herself?

Jesus what a grabby person. You don't like your sister much do you?

Hont it is a 175k mortgage with the same in equity through price rise alone. The 75k debt is elsewhere.

We would be getting a 175k second residential mortgage. Yes her plan is equity release as I have mentioned before.

Thanks reallybadidea!

Ah ok, thank you.

So she owes £250k in debt and has a house worth £350k.

In your position I would expect her to downsize and pay off the debt. I definitely offer to take out £175k of mortgage debt myself just to allow her to stay in the house which she could do herself with equity release.

*definitely wouldn't offer. The whole thing seems very dodgy and will likely irreperably harm your relationships with your mother and sister. Let her take the equity release and get herself out of this mess.

I don't think this is a good idea OP

You'll pay about £75k in interest on a 20 year mortgage term, based on current rates, which are mega low just now, what if they go up?

You'll have solicitors fees and stamp duty to pay.

If it's not your main residence, then taking into consideration £175k profit, you'd be looking at potentially £30k(approx) in CGT.

How will house insurance work? I'm struggling to think of buildings insurance that will cover you for this kind of residential set up.

You will be liable for all maintenance costs, if your Mum stays in it for 20 years, it will need a new kitchen and bathroom during the course of that, if not during her time there, then at the end of it, whether you live in it or sell it.

When you factor all that in, it starts to erode the £175k fairly quickly.

If all was fair, the equity should be split 50/50 between you and your sister as at now, then anything subsequent to this over the next 20 years should be yours to keep, if the question of disposing of assets doesn't come into play, that is. (The fact DSis lived there longer than you is kind of irrelevant to the financials, though appreciate it is something you are factoring in on a personal level).

Lastly, heaven forbid, but what situation may arise if you, or your DH passes away?

Also, on a more positive note, what if your Mum gets a telegram from the reigning Monarch and becomes one of our country's centenarians?

Time for your Mum to have a reality check, if you still insist on trying to forge ahead then you need proper legal advice here, further to the mortgage broker, need to speak to a solicitor and an accountant.

Lastly, say you go ahead and she clears her debts, what happens if she racks up more?

If she could afford to pay your mortgage, why can't she afford to pay a mortgage she takes out? What is the difference in term length between what she could take out and what you would? Her mortgage LTV would be calculated by reference to the current market value of the house, not what she paid for it originally... so she would also be able to access the 50% ltv rates.

You've been given lots of excellent advice from people far more knowledgeable than I so I won't comment on that, however what relationship do you anticipate having with your sister after? Or how do you think she'd receive the news, particularly that it's all been investigated and discussed behind her back?

I think remortgaging theoretically could happen despite her age but the current debts may cause an issue. Also the rates would be awful and she wouldn't really be able to afford a repayment mortgage after being used to interest only. Particular with a very short term or if she retired.

Hang on a min, has this not been looked at with a broker? If she paid down her debt with her £10k savings that would help.

It's sounds like she or you are just assuming she couldn't get a mortgage or it would be high without actually knowing that.

Open your eyes op. Your mum is manipulating you massively.

I’m also not sure you would find it so easy to get a second mortgage of 175k without a rental income to cover it. It reduces your affordability all round. May also affect you upgrading yourselves in a few years to e.g. a 2 bed flat. Especially if you then only have one income or high childcare costs.

Has the house been valued and surveyed?

If you bought it and she did live rent free it would definitely not be classed as a gift and would be considered part of her estate. If you do this, get her to pay rent even if you give it back. You will both need to keep tax records and submit a tax return. It is not as easy as you are making out.

I really don’t understand why you don’t encourage her to sell up and buy another place with her equity as a massive deposit - as you say her debts are going to be settled by another means.

That way you will keep the equity for an eventual inheritance, just from a different property. It’s also much easier to downsize while they are still active and healthy.

Dsis lived rent free for 15 years which probably contributed to DMs debt but also allowed her to save up for her own house.

DM does not want to downsize and will probably give the house away to a private equity firm.
OP wants to help her DM stay in the house and keep the money in the family.

If OP does nothing Dsis gets nothing. Everyone is a grown adult acting with free will, getting legal & tax advice, no one is being ripped off or conned.
OP is taking ALL the risks, paying all the taxes, maintaining the property and looking after her mother. The 'equity' is in effect advance payment in lieu of rent. If DM dies early then OP will have made a profit for the risk made, rather than a faceless equity firm. If DM lives longer than 10-15 years (which seems more likely) then OP will be losing money on their investment.

I think its entirely fair and actually laudable for OP to help her mother stay in her house. The £175k equity ( she might not see for 30 years) is probably no where near enough to offset the risks, not least of DM living 30+ years.

CheesyMother she would not have access to normal mortgages due to her age. She is used to paying an interest only 30 year mortgage not a 10 year repayment mortgage particularly close to retirement. We would have access to normal 50% LTV mortgages at lowest rates over longest terms.

keep the money in the family

No, it doesn't keep the money in the family. £175k still needs to be paid out to cover the mortgage. The question is whether OP pays that mortgage, or her mother sells up and pays it. Either way some mortgage lender somewhere is going to take £175k from the family some way or another.

The thing is, if you buy a house yourself, then if you end up with negative equity then at least you can stay put in the house.

With your mother's house, part of your motivation is to safeguard the £175k - but my point is you could end up with a lot less than £175k, even negative equity, on a house from which you yourself receive no direct benefit.

In that situation, equity release might have been a much better option for you and your mother.