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 know you can’t see it but your mother IS manipulating you by refusing to move to a smaller property in order to sort out her debts.

Don’t go ahead with this scheme. There are too many problems associated with it which have already been mentioned. My advice would be to tell your mother that you can’t go ahead with this crazy scheme.

She will not downsize of her own accord and will happily get further into debt just to keep the property. However if it was in our name she would accept our decision and would not cause any trouble at all. She is very keen to reduce any impact of this on us and will do anything necessary to help. It is our idea of course to act as the equity release scheme ourselves in order to do the best thing financially speaking.

which is why I am thinking we need to get something out of the arrangement ourselves that’s what I was trying to explain before. If you want to make morey, there are better ways of doing so.

If you want to help your mum at your own financial cost/risk then do it but don’t try to convince yourself this is something to benefit you both as it really isn’t.

But if she's adamant she's not moving, how do you see this working?

Mum, we're selling so you need to move out.

No.

........

I just think this sounds batshit and you can't see it.

At what price would it benefit us both then?

She is very keen to reduce any impact of this on us and will do anything necessary to help she isn’t though as she would just downsize!

I know it’s your mum and that clouds your judgement but try to see it from an outside perspective with all the emotion removed.

You crazy.

She would not say no in that situation, I am certain and she has said so herself. She has even said that if for some reason we are never able to move out of our 1 bed with DC she will reluctantly swap properties. She just wants the property to remain 'in the family' it seems.

OP your Mum is happy to see you commit to life in a 1 bed flat, possibly even with children, so that she can stay in the house she wants to live in.

You are her child. And she is happy to do that to you. Potentially for 20/30 years.

Why would she move later if you need her too when she's happy to do that to you now? At the very, very best she's not thinking of the things that could go wrong for you in this scenario. At worst she's being incredibly selfish and not caring.

Equity release isn't dreadful; as in any significant personal financial matter, you need a reliable, knowledgeable and experienced financial adviser. You don't say exactlly how old your DM is, but equity release is generally better taken out as late in life possible; this is where you need a good FA, there are excellent products on the market which are only available through FAs.

I have an equity release mortgage on my new-build purchase last year; I plan to stay here for the rest of my life. My FA found me an acceptable mortgage but kept his eye on the ball and showed me the details of a new poduct on the market, from a reliable lender, and I switched shortly before the signing the contract for the purchase.

Equity release mortgages are fixed interest rate, and given that interest rates are low at the moment and have to rise at some time in the fairly near future, they could end up being a very good deal. I didn't use mine to pay off personal debts, my only debt was the small mortgage on my home I'd owned for 30+ years, and a three figure credit card debt.

Whichever method is used to improve your DM's financial position, it will impact heavily on the inheritance she leaves. The fact that unlike the rest of Europe, UK has accepted the stupid idea of a family home also being an important financial investment, means that your DM has to consider the best way of using her investment to secure her financial future. What inheritance she is going to leave her children and refusing to consider leaving her longtime family home come a long way behind behind the investment/future security aspect.

I think that you genuinely believe you have come up with the perfect soulution for both your Mum (to stay in her house) and you (to get the equity) and that people who are disagreeing just aren’t understanding you. I think you believe this is fair because you are taking the responsibility/risk and that your sister could have done this if she had wanted to. I can see your logic.

However, it is fatally flawed. Fatally.

I’m not sure what can be said, that hasn’t already been said, to make you see just how bad this idea is.

You are seeing the £175,000 and (understandably) wanting to ‘save it’ from being lost to ‘outsiders’.but that £175,000 is your Mum’s (well £100,000, the £75,000 belongs to others). Saying she doesn’t want the equity makes me doubt she really understands what’s it means. No one ‘doesn’t want’ £175,000 cash, especially when they’re in debt.

£175,000 is a lot of money, but if you go ahead with this I honestly believe you are sacrificing your relationship with your mother (despite her thinking it’s a good idea now, she won’t in the future), your sister, your DH, your future children and your own mental wellbeing. Would you swap all of that for £175,000 because you should only go ahead if you would...but, and I’d put money on it, you will not end up £175,000 better off either.

I don’t see any of us being able to talk you out of it, I just hope someone IRL can get through to you what a dreadful idea this is.

Stop seeing equity release schemes as bad if one is willing (and with an interest only mortgage who knows) it’s either that or downsizing for her

I can’t work out if your mum has done a number on you or if you are inheritance grabby

If it’s the first she clearly will cause trouble
If it’s the latter buying an run down house that will become even more run down whilst trying to raise a family in a one bed flat is the least financially savvy option of the lot

Either way it’s a stupid idea

To be honest we would rather stay in our 1 bed at least for now without DC. I grew up in a 1 bed flat until the age of 7 or so thus it is not such a big deal for me as it may seem for others.

DM would swap properties with us if we really wanted to. She just wants the home in the family as I said.

At what price would it benefit us both then? it won’t, because of all the issues raised in the thread, that’s the point.

Bear in mind that you will have to pay stamp duty on a second property which is a lot higher than on the property you live in.

There are so many reasons why this is a bad idea and many of them have already been pointed out by previous posters

Even if you were an only child and didn't have a Dsis to consider it would still be a terrible idea

I'm almost flabbergasted that you still don't seem to be taking in what everyone has said to you.

It may look great at first glance for you but It's an awful idea as soon as you scratch the surface. And a TERRIBLE idea for your sister. If you continue with this plan you will destroy your family relationships. My brother drives me nuts sometimes but we'd never even consider doing this to each other.

She has even said that if for some reason we are never able to move out of our 1 bed with DC she will reluctantly swap properties. this is actually quite sad to read.
Not, she would happily swap for her daughter and grandchildren or that she wouldn’t put them in that position in the first place but she would reluctantly swap if she was forced to and you come across as though you think she is being decent by saying this.

You divorce?
You need to move away to work?
Your mother lives for 40 years ?
Mortgage rates go up?

Be aware that if your DM sells the property at undervalue to you and subsequently one of her creditors makes her bankrupt within 5 years, the transaction could be reversed:

www.insolvencydirect.bis.gov.uk/technicalmanual/ch25-36/Chapter31/part4A/Part%203/Part%203.htm

You say the £175k equity has come from price rise alone - well, think about the fact that the price may fall. There may be a hard Brexit looming, there may be another financial crash - lots of things that could cause house prices to fall nationally or regionally. That £175k does not actually exist until the house is finally sold outside the family. You are tying yourself into a longterm financial arrangement that will restrict your life for the sake of an entirely hypothetical sum of money.

Yes I am seeing equity release schemes as 'bad', perhaps that is the problem! If we don't get involved it will be fine I suppose and that is what will happen.

The family relationships aspect was I suppose the point of this thread - to get opinions on that. When it was the other way round I was not too bothered and was pleased that my DSis was considering it but looks like others think differently which is useful.

Ignore the word reluctantly!

Divorce does need to be thought of. Moving away for work sounds far-fetched and I don't see how that would impact paying the mortgage? Don't think living 40 years is very likely - I would hope/expect for her to live for say 20 years until around 90? Yes if mortgage rates go up that would have impacted me on my hypothetical much bigger mortgage that I planned to take out soon anyway. Also mortgage on DM's house would be reasonably low anyway.

At the very, very best she's not thinking of the things that could go wrong for you in this scenario. At worst she's being incredibly selfish and not caring

This ^^

Anyway, this is going round in circles with many posters offering excellent advice and OP taking absolutely none of it on board

I'm out

Thanks phoebemac, she would agree for the property to be sold in that extreme situation.

WalnutToast that is true, but if we are thinking 20 years then hopefully it would be ok. It would be quite something to lose 175k in a property.

Of course I am taking it on board, that is the point of this thread to gather advice and take note of all the loopholes and red flags I have not thought of, particularly in advance of talking to DSis!