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?

The over riding sentiment I'm picking up is that DSis's opinion, wishes, preferences are irrelevant.
Your DM is ambivalent.
It is only you that will benefit financially.
The relationship fallout will doubtless be present for many years.
If I were your DSis, I'd be fuming that you've gone ahead with discussing this with DM behind her back and that you've got as far as speaking with brokers and getting the house valued.
Surely, surely it would have been better to have a family meeting once your DM's precarious finances became apparent? The 3 of you sit and discuss options. Be open and honest with each other. Then investigate the practical solutions.
You've gone behind your DSis's back.

This is insane. If you go through with it she needs to pay rent from her current wage (which is more than yours), use her savings to clear some debt and continue to pay rent from her pension. Otherwise you are throwing yours and your husbands money at a situation where you will not necessarily gain financially.

You are also risking your relationship with your husband and sister.

You want to get a second home mortgage on a 35 year term for 175000.

That's 110000 interest over the term. Plus the 175000 you borrow. It's 6500 in stamp duty. Any solicitor will ask a lot of questions about you buying it below value.

And you do not have the required deposit to be able to do it.

It needs a new kitchen, bathrooms and no doubt windows, heating, electrics. You are running into tens of thousands here.

Sack the broker. It's not possible and it's an absolutely crazy plan.

All because you have pound signs flashing before your eyes.

You are ignoring how much it will actually cost. Emotionally and financially.

I'm assuming you've checked her 75k debts are unsecured?

HalfwayCrook - it's because your motivations are a muddled mix of the 3 I mentioned that there is so much potential for discord and heartache in this. At some point, the 3 motivations will probably be in direct conflict and you will have to make uncomfortable choices, possibly with the opposition of your dsis whom it may well suit to interpret your actions in the blackest light, and possibly in a way that will leave your dm feeling betrayed by those she loved and trusted. It is seldom the case that elderly parents feel ready to leave their home at the same time that their children feel they need to for their own safety. 30 years or more is a long time to have your money tied up, too, unless you actually intend for the money eventually to be spent on your dm's care in old age. I don't believe you would want to see your dm in a council-funded home, if such a thing exists by then, tbh - you will want to pay for something nicer or to find some other solution, irrespective of your dm's current stated intention not to burden you with her care in old age.

So I guess if your main aim is to save money for your dm's care in old age (which becomes an inheritance for her children if she dies unexpectedly young), then I can see why you might want to do it, but if you are strongly drawn to the potential of personal gain, then don't do it, because it's no doubt the aspect your dsis's radar will be picking up on and it will tear you apart in later years when your dm's desires, your love for her and your profit are all pulling you in different directions.

If your DM is happy with equity release then what is the problem? That seems to be a solution she is reconciled to and is happy with. Surely the best and most helpful thing you could do would be to help her find a good one.

There is something uniquely irritating about this thread.

As I said up thread I very much doubt your DM will get enough of an equity release loan to pay off the mortgage. I know you have had the house valued but a few phone calls to equity release companies would give you a much better idea as to how much they would actually release.

I would go back to what a previous poster was saying about you helping fund a shorter repayment mortgage in your DM's name. Sounds like the best idea to me. It doesn't tie you into a very difficult situation and it gives time and space to rethink when your DM's financial situation changes. Then you could relook at it when she has paid the £75K off and re mortgage then or look at equity release at that stage as the mortgage principle would be less and the LTV would be higher.

Jesus Christ.
You have only spoken to ONE dodgy mortgage broker haven't you?
There is no mention anywhere in your thread of you consulting financial advisors or lawyers to nut out the details of this bonkers plan.

I gather from the additional info provided that it is likely your mother cannot extend or get another mortgage as she's only paid the interest for a number of years and like many people is now being run down like a deer in headlights by actually having to pay down the mortgage amount.
(despite having 10 grand in savings, and a mysterious way of paying back massive debts - that I assume is an inheritance of some kind.)

The housing market is on the way down. Anyone who reads anything in the financial news would see this. Stock markets are wobbling with this trade bullshit going on. This is NOT the time to do anything even vaguely risky financially unless you are Warren Buffet.

There are tax issues, there are additional fees, your mother has been a numpty in the past with money , you will not be able to take time off work if you want a child due to this financial burden. You need to take your mother out of all future considerations of how you will be able to carry this long term because that is the sensible approach.

And just because your sister refused to shoulder the weight of your mum's financial burden doesn't mean she has no say or has therefore done herself out of her inheritance, and though I see your point in re her rent free years - the time to speak about that was then....and this is another example of your mother being a numpty with money.

Like 98% of the people on this thread are saying.Just no. No. No.

Get yourself to a very very experienced financial planner - and if you can't afford to pay one you should definitely NOT do this.

I think you need to get some really good advice here. Second and third opinions. Legal and financial. You and your DM separately.

I can’t see how POAC wouldn’t apply here (uk.practicallaw.thomsonreuters.com/9-508-7965?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1).

I think what you’re saying is that your DM would elect to not pay this income tax and instead pay IHT on death. You believe that the value of her estate (which in this instance would include the house YOU own) would be covered by the IHT exemption.

Am I right?

Setting aside the issue of your sister (already been covered better than I can by many), I’m surprised your advisor hasn’t made you aware of future changes impacting today’s decisions. For example:

1. the IHT threshold is reduced - if it is, you could get caught.
2. the ‘good’ salary and pension your DM translates into a large savings balance which will mean that her estate exceeds the IHT threshold
3. the rules on gifting assets to avoid care home fees are strengthened beyond what’s currently in place.

Certain tax legislation has been retrospectively applied. This could happen again.

Then there are changes to your personal circumstances to consider - again, covered by others... divorce, health problems (you, DH, DC).

When you add all of these things together you have so many risks that it just doesn’t make any sense.

I appreciate that you want to do something great for your mum. But I think you see this as a massive ‘win:win’. You are quite dismissive of the risks - particularly when you point to others likely to be worse off than you in the event of a house price collapse. It will be fucking rubbish to be caught in something like that when your kids need shoes, school trips, the boiler is broken etc. It will be little comfort that others are struggling too.

There are easier and safer ways to get £175k.

This thread just keeps on giving....

Looking forward to 5 yrs time when it's all gone wrong as predicted by 99% previous posters - who OP completely ignores...

I think the CGT will negate alot of any other gain. It will be payable on the difference between the price you acquired the asset at and the selling price when you eventually sell. The basic rate is 18% and higher rate is 28% (these could change). I think the annual exemption is about £11,000 and I think you can used any unused allowance from the previous year. If you wer to sell at £400,000 then the gain is £400,000-£175,000= £225,000 less two annual allowances = £203,000. Assuming you are a basic rate tax payer than CGT liability would be £36,540 and if you are a higher rate tax payer the CGT liability would be £56,840.

Thanks everyone - seems that slithytove's suggestion is a good one that forces DM into settling her debts while not putting us and our future at risk! I am unsure about how to keep our contributions ringfenced though without annoying or worrying the lender. Perhaps some sort of contract made up within the family?

Yes that is what we did - there has to be an element of trust but all familial contributions are contracted, signed witnessed, accounted for in wills and lodged as part of that document.

I use a very good broker who has answered questions like

• can we get a mortgage that takes a gift into account as income (there weren’t many so he advised me to say this gift was actually maintenance. It worked)
• can we sort this before my maternity leave starts and not tell them (yes, he did)
• I want a buy to let but don’t want to say that’s what the additional borrowing is for, what should we say the reason for the additional borrowing is (answer was home improvements incidentally)

He is great and helps me find what we need while keeping above the law and ensuring we can always afford the eventual product we take out. You need someone like that.

I would also have a very frank conversation with your mum about if she is happy to let you invest your money into the house, then she needs to do the same. She has been paying money all these years essentially for nothing - the idea that she doesn’t want to invest in a house is ridiculous when the alternative is her paying rent to a mortgage company (via interest only). You say she is calm so will hopefully listen and appreciate it even if she doesn’t understand.

Let your mum get on and do her own plan.

If she's now such a reformed character she can get her own financial advisor to help her choose a good equity release scheme or remortgage.

You have terribly low opinion of her it seems. Yet she will be able to pay off a 75k debt in 3 years time, has a good pension and is in good physical shape. She can't be as daft as you think.

Your underlying theme is that your mum is dangerously stupid and will get conned out of her house by someone. Surely there are better ways to make sure she gets proper independent financial advice. Maybe help her get proper advice instead.

DM seems keen on slithytove's idea as it causes us much less fuss to us whilst still helping her out. She is being convinced to look for repayment mortgage options!

Is the debt due already or will it all come due at once? Has it been consolidated to reduce the payments as much as possible? Are any payments being made towards it?

Are you finally realising this is crazy? I hope so! What made you come to that decision? Hundreds of posters tried to tell you but until now you've been set on going on with this plan so I'm intrigued

Oh, hold on. Just realised you are answering the only poster who said you should take on your mums debt. Even though she can pay it in a couple of years.

This thread isn't real

I didn’t say she should

I offered it as an option after saying many many other things focused around not buying the house

Sorry if I misunderstood that. But she's not listening. At all. There's no equity to be had anyway in this plan and the Op has her eyes firmly on the imaginary money.

If it's real. Which I'm doubting!

I know 😂

@slithytove

The broker isn't keeping you above the law if it involves lying to the mortgage company, especially if that lie is that you need the money for a buy to let but lie and say it's for home improvements. That would totally change their risk profile. And you have committed mortgage fraud which is very serious.

Debt is due and no payments are being made. I have no control over that!

Hmm no I said I like the idea of lending DM money to encourage her to take a sensible option eg paying off mortgage rather than equity release. Perhaps if I offer to lend her some money interest free then that will give her more confidence to take on a huge repayment mortgage in a short term if that is possible.