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?

DM will not put savings into the house of her own accord. All I have to hand is the 10k or so to cover the stamp duty and legals.

You need to find a really good broker and not just check high street

Though there are some good rates around and depending on her age may not disqualify her
Santander loan to 75 I believe

WalnutToast I am worried that there will be an equity release possibility but an awful one e.g. virtually no equity cash given and DM will accept it in desperation as it means she can stay at home without any monthly payments.

Forget the financial considerations for a moment.

I can tell you what is in your DM’s mind, because I have dealt with a similar scenario. She is thinking that if you do this she will be able to stay in her home till she dies. If she needs care in the future, you will provide it. That might mean you moving in with her to provide 24/7 support.

This is the unspoken part of the deal. And right now you might think that you would be OK with that.

I strongly advise you to talk to someone who has actually done this, because it is no cake walk.

If you are hell bent on this scheme, as seems to be the case, you need a full and frank discussion about how she sees her long term future. If she makes any noises about not wanting to go into care, you know what you are signing up for.

And believe me, you will earn every penny of your windfall.

Still that’s 165k
This may yet be an option

Slithytove I meant CGT on my initial proposal. Surely there would be IHT on a 400k home?

I think you are optimistic about mortgages, they don't seem to take salary into account at DMs age. Although there may be one or two products out there with specialist building societies maybe? Brokers so far have said no based on a 2k pension...

DM has said her nightmare would be to burden us with her care and she expects nothing. Although none of us know the likelihood of the council believing that this is deprivation of assets many years down the line.

If she really doesn't want to be a burden why is she ok with you doing this?

My DM also said she didn’t want to be a burden. Of course she doesn’t, who does? But wanting and being are not the same. Once someone has dementia that wish goes out of the window.

She doesn't particularly want us to help. She just wants to give the home away and be done living stress free. It is us that are unhappy about the home being given to the company hence suggesting possibilities. She does not want any responsibility towards the house and does not particularly care about assets and finances as long as she gets to stay put, preferably not paying.

No IHT if your portion of investment is legal as her portion is under threshold

Forgive me but your broker sounds rubbish

Why not ask on gransnet if anyone has mortgages 65+

So she does want to give it away? So why not just sell it! She will walk away with 170k to buy something else outright - which will become inheritance one day

Just a note on equity release. If you don't have a property in view you can still get an equity release quotation because it's worked out on the borrower's age (or the lowest age if more than one borrower). Once you've worked out your own finances and have a definite property you want to secure an ER loan on (it can be to buy a house new to the borrower), a quotation will both quote the interest rate and show you how the interest accrues year on year up to the age the actuaries calculate as the borrower's most likely age at death.

This date of death isn't a prediction, it's simply an actuarial risk calculation based on the borrower(s) age(e) and any lifestyle risks (smoking, etc).

If she had dementia in the equity release scenario it would be similar? She would go to a council nursing home if we could not help?

Ah ok slithytove so legally owning what we put in so it is not part of her estate? Do you not think 75k of debt would impact affordability majorly?
Because giving it away to a debt/equity release company means she lives there rent-free which is her sole aim.

WalnutToast I am worried that there will be an equity release possibility but an awful one e.g. virtually no equity cash given and DM will accept it in desperation as it means she can stay at home without any monthly payments.

You yourself have said this is her preferred option, so surely worth looking into it? It's also what your sister is assuming will happen. If it would allow your mother to remain in her house for life - I'm not saying it would, I've no idea - it might be in her best interests, as could be less risky for her than relying on you being able to pay a long mortgage.

Indeed in DMs equity release and our proposal make no difference to her whereas downsizing does. So she says either is fine, up to us if we want to take it on as she has no objections. Hence now up to us to research ourselves if worth the risk before getting DSis opinion.

HalfwayCrook - as I've stated before, I know 4 families who have done similar to what you have proposed, for very similar reasons, and none of them ended up happily ever after. All ended in acrimony. If your mother genuinely doesn't want to bother you with her care in later years, then she will say no to your proposals and will start taking a more responsible attitude to her finances herself, rather than behaving like a baby who cannot be trusted to make sensible financial decisions and who needs her children to keep her on the straight and narrow - or at the very least, stop letting you treat her like a baby when she is still a fit and healthy woman. You are already perfectly lined up for family discord, with your underlying, unspoken disapproval of your dsis living with your dm rent-free for years; with your needing to check what others think of you keeping all the equity; with your slightly unbelievable assertions that you will happily let your dm live in the house for 30 years (but also just as happily kick her out if it becomes a financial strain to you and your dh....); and with your firm belief that left to her own devices, your dm will piss away the equity in her own home. You will at some point either end up feeling trapped by your arrangement, or guilty for having to be mercenary. You are also creating a very lopsided relationship between you, your dsis and your dm, which is guaranteed to come back to bite you. Resentments will surface on all sides as the years go by and everyone's situation changes, new debts or assets are revealed, the contents of wills are discovered, senility and the need for powers of attorney arise (has your dm made one, yet?...), etc, etc. You will undoubtedly at some point be accused of being greedy and controlling, even when trying to do your best by everyone. You also sound deeply confused as to why exactly you want to do this - kindness and love; to gain financial control over someone with the financial acument of a baby; personal profit?... your thinking seems to be a confused mix of all 3, imvho.

She would go to a council nursing home if we could not help?

Assuming that such things exist when and if the time comes (councils are moving away from running residential homes as a matter of policy, in favour of home-based care) have you actually had that conversation with her? You need to.

Thanks roundaboutthetown for your insight and analysis. DM is very happy to take responsibility and do equity release, this scenario has been thought up by us and she is ambivalent - grateful for help and pleased if we get to salvage anything at the end and also invest in a property that is likely to see growth.

There will not be discord between me and DM at all we are very calm relaxed people however yes DSis can be a different story. So of course her input is needed once she understands all the options.

Of course we are happy to let her live there for 30 years that is the point of this. But in answering previous doomsday scenarios, then we would be forced to sell and buy her a smaller property.

The firm belief that DM will 'piss away the equity' is taken from her herself. She will do anything and she says losing 175k etc is well worth staying in her own home. People have different priorities.

But yes I am sure others will cause issues and see this in varying lights so that is something to consider. Motivation is exactly a mix of the three you mentioned!

Are you sure you could get a mortgage? I thought it was almost impossible to get a buy to let/second home mortgage for a relative? Wouldn't she have to pay 'market rent' to you, and you would have to pay tax on this ? What about the possibility of you needing that money?

I know a family where the parents sold their house and moved in with one of their children and their husband and children. They lived in a big house and hoped to live their forever. One of the parents became ill and has carers come to the house daily. The other parent, sadly also became ill and went into a care home. I have no idea how all the care is being funded. However, note that all living together, did not stop one of the parents going into a home.

If a private landlord bought the house for full market value and rented it back to your DM, after paying costs & debts back, she would be left with what, £80,000 ish? How long would that cover her rent/repairs, 8-10 years? And Dsis would get nothing.

I think your sister will be lucky if you generate for her any inheritance from the from the sale of the house, so everything is a bonus. I think its more than generous to say if the house is sold in 1 year you give her a percentage after costs (based on today's £175k) equity, of 40%, in 2 years 35%, 3 years 30%, 4 years 25%, 5 years 20%, 6 years 15%, 7 years 10%, 8 years 5% and nothing after that.

If your DM is living rent free and sitting on a £2k a month pension then once she paid back her debt she will easily be able to build up some savings that can become a substantial inheritance.

Why is the mum going to have an epiphany and suddenly start building up savings? That's called wishful thinking.

But dm is expecting a reasonable pension income, so she may not have to use the capital to pay rent.

Sorry I was out
Honestly you need a good broker who will discuss all the possible options with you, I’m not a broker so not able to advise on how the debt will affect affordability - but I imagine there are many options on this.
E.g. could she transfer the debt to you knowing she is due a lump sum to settle it?
There are ways for you to help that are less far reaching on you.