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?

Aside from anything else, you are deluded to think anyone would just continue allowing their ex-mil to live in the house they half own.

Capital gains tax may go up.

Have you factored that in? When you sell you will be liable for tax on the difference between purchase ans sale price.

As you are buying for less than the value you immediately incurr capital gains when you sell- if you sell at a market rate.

But you are not acting as an equity release scheme, quite the opposite because you are not giving her any money . If you paid full price for the house and your mother had 175K in her hand that would be equity release. She's getting nothing for her house!

I'm really doubting this thread tbh, because it just seems so unrealistic!

Are you able to guarantee her mortgage so she is the one paying it but maybe she can get it a bit longer to start making payments?

What Is her equity percentage?

Moving away for work is not ‘far fetched’. Have you always lived in the same area? Many people have to change jobs or careers over the course of their working lives which means relocating. You might decide you need to be in a different area for better schools once you have DCs.

I get the idea behind it, you will be taking a huge financial hit to do it, and if you don't do it there will be no equity to split.
So yes, I think it's reasonable for you to take the equity if your sister doesn't want in.
Lets say your mum gets 20 years of being rent free, and calculating rent at £750 a month then that would be £180k alone.
I don't think it's unreasonable to keep the equity in this scenario.

However, I do agree with others that it's a bad idea, you will have money tied up in a house that you cannot use. If your situation changes you may need to sell and that would cause a lot of problems.

You also have to Pay stamp duty on the full value if the property not just the price you are paying I think.

Are you actually for real? Are you suggesting you buy a house worth £250k for £75k? Have I read that correctly? And you somehow think you’re doing your DM a favour? I’d like to know what’s so wrong with these ‘dreadful equity release’ schemes you have such an issue with? Other than they don’t leave the house to you...you’re a grabby CF.

Without our involvement I am certain there will be no equity or inheritance to speak of.

Just for the sake of thinking this through: imagine friendly neighbour A who likes to help out your DM would have come up with this exact same plan and got your DM to agree to it. You would probably feel conned out of your inheritance. Even though the sentence above would apply as well to you. So now back to you: that is how your DSis will feel. Conned. And rightly so.

Your plan has disaster written all over it.

Have any of her creditors put a charge on the house?

I actually don't see a problem with it. You can get two residential mortgages, I certainly do (fil lives in one). As for your sister's 'inheritance', that's up to your dm to decide, not for you or dsis or other posters on mn to declare what is fair . If your dm and yourself are happy for the arrangement to go ahead and are aware of all the possible out comes, then it's between your dm and yourself.

If it is worth £250,000 you will pay 5% stamp duty going to 8% if it is more.

Do you have £12,500 to hand, which is the minimum that you will need?

It doesn't sound like OPs Mum is as understanding/coherent as the OP is making out.

To be 75k in debt, and to say you're not interested in 175k equity and want to give it away - which we only have the OPs word for - shows that her Mum needs independent advice.

Actually my maths was wrong. It is only 3% for the 1st £125,000 and 5% for the next chunk

So you need about £10,000 plus legal and mortgage fees etc

Could you not act as guarantor for your mother to take out a mortgage?

Urgh, this kind of shit makes me glad that nobody in my family owns their property.

I can't comment on the rest of it, but as someone who has worked in care home funding for my local council for 16 years, I can tell you that if someone who has no care needs at the time, disposes of their asset the council will NOT be able to treat the person as still owning it if they then needed care at a later date. No there is no specific time limit, but intention is very hard to prove and if there were no care needs at the time, it wouldn't be a consideration.

Yes I have not hidden that part of the motivation would be to take the asset out of DM's name due to the debts.

So if your DM cant pay her debts it would be a transaction defrauding creditors. If she was bankrupted the trustee would come after it (and you). Indeed, this thread would be disclosable in court as evidence of your intentions

Yes of course I expect CGT liabilities.

I will have to sit down with DM and openly go through the pros and cons of this vs equity release, particularly in regards to her getting no cash out of it! Perhaps she has not thought it through hard enough. I just asked her what she would do with equity release cash and she said she would want to give it to us to 'hold' in cash so that it is out of her name!

Moving away for work would be fine as that would mean a cheaper area?

Thanks QueenUnicorn, selling would not cause problems down the line - she would be agreeable to whatever we had to do if we explained that we could no longer afford it.

I don't see the similarity between a neighbour doing it and us? She would not agree to gifting equity to a neighbour?

No, there are no charges against the house. Yes we are willing to put up the second home stamp duty etc, we do have it to hand.

Randomusername01 well that is how we have been seeing it up until now however we would also need to involve DSis.

Interesting ashtrayheart, please do tell let me know your thoughts.

She will not be bankrupted, but say it came anywhere close to that we would sell the house to pay it off and she would want that too.

If your mother is working and earning a higher salary than you are then why on earth is she in such debt? What has she spent the money on? An interest only mortgage even for several hundred thousand is only a few hundred a month, so she is seriously overspending and bad with money. She will not change.

Several years ago I got involved with something a bit similar to what you are proposing - I bailed out a parent and took over the mortgage, paid off debts etc. The parent was unwell and had fallen on hard times through no fault of their own.

All I can say to you is don’t do it - it’s really not worth it. I thought I’d covered all the bases when I tied myself to paying someone else’s mortgage. But then came redundancy. Then we had a severely disabled child. Then I fell seriously ill and had to manage on reduced pay for a while, plus had to go back to work sooner than I should have because I needed the money due to this bloody mortgage. It has caused a lot of family stress and tension and really restricted my life choices in the last few years.

Don’t be blinded by £175k - if you invested that money in a buy to let property with a paying tenant now you would make more money than you will ever make on your mum’s house. And it would come without the emotional baggage.

This just sounds WAY too complicated, with too many factors you haven't paid attention to.

You say that there's 175k equity, but your DM owes 75K. So really, there's only 100k.

How are you going to guarantee that your DM DOES pay off debts if you do this? So many people sound sincere - probably believe themselves to be sincere - but the moment that there's a sniff of money they start spending it again, rather than paying back debts.

I don't think you should be stepping in to 'save' your mum (or her money). She is highly unlikely to make good on any promises, there are all sorts of issues like depletion of assets, IHT, what if she doesn't pay, what if you divorce (and you can't assume that your DH would do the 'right' thing if that happened) that you seem to be glossing over. In fact, you sound like you're following in your mum's footsteps and letting optimism be your guidance, rather than cold, hard finances.

This doesn't even take into account if you have a child, or two, or just want to move jobs etc.

Everyone on this thread is saying NO but you're ignoring them. That's before we even touch the ethical dilemma of how your sister is affected.

And of course a broker will say it's possible - they want your money.Difficult to get mortgages come at a much higher cost and they make a LOT more profit on selling those ones. They can take you to the cleaners on this.

I think if you actually got together some real figures you'd see how utterly unworkable this is. Financially, it has disaster written all over it.

She has not run up debts through things like credit cards, it is poor financial investments (conmen) which have gone very very wrong.

Yes that sounds an awful situation. I suppose then we would just sell up?

I don't understand what money people are suggesting to invest? We don't have any, it is hypothetical! We are certainly not about to go looking into BTL properties which need minimum 25% equity.

Thanks for all the responses so far.

Sorry OP but it’s nonsense to say that she wants to keep the house “in the family”. What does that even mean? Is the plan that you will never sell it?

On the deprivation of assets issue, I agree with ashtrayheart that realistically it would be difficult to prove, fifteen or twenty years down the line, that your DM intentionally deprived herself of assets so as to avoid care fees. However, while it may seem canny to move the assets out of her name in order to avoid care fees, you should be aware that this will severely limit the care options available to her. LAs have very strict budgets that simply don’t cover the sort of facility where your DM might want to live.

If your DM’s welfare is genuinely your main concern, you would be better buying the house in your name and charging her rent to cover the mortgage. This way you won’t be supporting her financially, just facilitating her continued occupancy of the house. If at some future time she needs to go into care, the house can be sold at that point to cover the fees of a private care home. That way neither you nor your DSis will inherit, but neither will you be out of pocket.

What equity % does she own

Well that it would not be sold while she is alive I think. It is very idealistic but she is just being silly and sentimental!

The deprivation of assets does concern me as of course this is not my intention and not on my radar although it seems as if they could try and argue it particularly as he would be still living there. It does seem very risky.

We cannot buy the house for market value. And you cannot really do BTL to a family member, I don't think a lender would agree to that.

I reckon she has 50% equity.