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?

Your DM needs to see a debt adviser to find out what the implications of her debts have on her ongoing ownership of the property and then look at repayment options or insolvency.
All you would be doing by taking ownership of the property is facilitating her ability to rack up a further load of debt a few years down the line.
She might listen to a third party.

People are talking about the £175k you are about to invest in your mum’s house!! You said you have the stamp duty and fees available - if you used all of it for another house it would be a more sensible use of money than what you are proposing.

If your mum hasn’t even managed to service an interest only mortgage when earning a decent salary and has also run up such a huge debt then there’s absolutely no way she will be able to pay back a £75k loan when she will soon only be earning a pension. Unless she has an amazing pension provision equal to her salary?

What happens when she continues to be conned or waste her money into retirement? She will still have plenty of avenues available to her to continue increasing her debt. Or what would happen if you do buy it but need to sell in the future? Trust me, she would be guilt tripping you for some of that equity back.

Personally I think your mum needs to see someone who can talk some sense into her.

She needs to sell up, pay off her debts and use the equity she has to buy somewhere much smaller.

Or, she needs to look at equity release to pay off all of her debt.

I am sorry that she has been conned but these really are the best solutions.

I would also be very surprised if your broker was actually able to get you the money you need, with no deposit, as a 2nd mortgage, especially as lenders are a lot more cautious at the moment

Well I wouldn't have the 175k unless it was all in my name and I sold the house after she passed away? So that is irrelevant unless you mean cash from equity release? That would not be to do with me though.

The gifted equity would be the deposit for the mortgage.

The debts are a 'one-off', it is a mistake she deeply regrets and is very keen to get rid of the debt. She will be able to pay off the debts reasonably soon due to certain circumstances. Money from equity release would be separate to this and I doubt she would want to touch it much. Yes she has a pretty decent sized pension.

The debts are a result of one massive mistake which has spiralled and caused her trouble for many years now. She did not deal with the after effects of the mistake well hence all the issues. After this life-changing sting, I doubt she will want to get involved in other investments at all!

So her mortgage stands at £175k?

Have you looked into a guaranteed mortgage but it all staying in your mums name and she starts paying down the debt?

I have not looked at guaranteed mortgages but am not sure it is a good idea to involve my own home in this? Also she does not want to pay down any debt in terms of mortgage just the outstanding other debts.

Have just read the whole thread and have a few thoughts that I don't think have been mentioned. First you say there is £175k equity in the house. But how much in total is actually owed including the mortgage? Is the equity left higher than the amount owed?

The other thing I would point out is that another OP posted a similar story recently in that they wanted to buy a BTL property and put a relative in it. They hit a major stumbling block in that they couldn't get a BTL mortgage for a relative as you have to be able to evict a tenant and the tenancy has to have a time limit on it. The mortgage companies do not lend on this type of arrangement because they see it as a major flaw that they can not repossess the property.
I would look at equity release in more depth with your DM and if it is possible and the way she should go I would ensure she gets the best possible deal.

If your DM's main reason for not moving is that she wants to keep the home in the family. I would suggest you buy it from her and she move into a smaller property/your 1 bed flat. Problem solved.
If she is not keen to do that then it is just a smoke screen for her wanting to continue living an unrealistic life style and I would recommend that you walk away and leave her to it.

I did say that the equity is likely about 50% of the property. Yes I agree that BTL with a relative is not an option hence in this situation she would not be paying anything.

She wants to stay in the property herself however she would still prefer if we lived in it rather than it was sold. I would not want to live in this property myself and would never buy it normally but would be willing to live there if necessary.

Why are you facilitating your irresponsible mother?

If she’s got an interest only mortgage with no repayment vehicle in place then it’s her own stupid fault. She should be ashamed of herself expecting you to bail her out.

However yes with all this hassle there would have to be some sort of gain to make this more worthwhile on our part hence why I started this thread regarding the equity/inheritance and whether the effort of going through all this (as opposed to my sister who opted out) should be reflected in any "inheritance" later down the line. It looks like people think that is not a relevant aspect though which makes me consider if taking this on without DSis is worth it if the costs are too high and no benefit.

You are off your rocker with this "plan" OP.

You mum earns more than you and sometimes the near future means she will be able to pay off her debt. She has a decent pension. She is being a sentimental fool or manipulating you with all this tosh about wanting the house to stay in the family. a house you don't even want to ever live in yourself.

You seem to think there is a way of benefitting yourself 20 or 30 years ahead. You might die before her and never see a penny of that fictional money.

You're going to come a cropper on this. If your mum won't move now, do you really think another ten years say would make her more likely to agree to move? As if.

You don’t seem to understand what this entails. To buy your mums house you will have to borrow £175k (or whatever amount). You will be getting yourself into debt for £175k with a mortgage company. What I am saying is if you borrowed that money and bought a buy to let instead of your mum’s house it would be less risky than this idea as at least you would be getting rental income. A mortgage that size would be at least £1200 a month. You’re intending to pay this yourself and not charge your mum any rent? It’s a lot of money to lose each month and you will really feel the pinch when you have children.

Also, you cannot use “gifted equity” as a deposit towards the mortgage. It wouldn’t be a straightforward purchase as you are not legally allowed to sell someone a house for half market value. You would have to come up with another way, probably that she sells to you at full market value but gives you the equity on the day of sale so you can complete the purchase. It’s dodgy.

Also you said in your OP that your mum has always been terrible with money but then change this to say that it was just one issue that caused the huge debt?

Don’t do it!

Why don't you say to your mother that you will help her with the results of her financial mismanagement but only if you do a property swap so she has your fault, or sell your flat and move in with her and use the proceeds from your flat to buy a share of her house and draw up a legal agreement re your sister to protect your and her inheritance?

Your mother lives in a house she can no longer afford, she's working, 60's, in a position to rent/sell house to downsize to a flat. You're not in a financial position to buy your own home so why would you push your finances for your mum for 20+ yr? She'll be fine not living in a 3 bed house. You'll maybe feel pissed off paying for a 3 bed house with 2 kids whilst living in a 1 bed flat.

It's a mad idea. You're going to be stuck living in a small flat while your mum lives rent free in a house you're paying the mortgage on. No wonder she's refusing to leave. Your Mum.could live another 25/30 years. Ok so then you'll get this inheritance but at what cost. You'll need to wait til then to get a good sized house of your own.

It's madness paying a big mortgage for a house someone else is living in.

So you don't want to live in the property nor buy it (given the choice). At the end of the day it's your mum's property plus her mis management. We're talking 175k here not 1.75million. Yes, it's still a lot, but if it's not worth that to you then why buy to improve and struggle vs shake off your mums loss. It was never really your money anyway.

I find this incredibly convoluted, confusing and I thought I had a bit of a clue re finances etc.
I think therefore, that if it is as much of a mess of idea as it seems from the post that you should not touch it with a barge pole.

Why on earth would you do this if you have no intention of living in the place, your mother has no intention of moving, it's likely to piss your sister off and there is no real benefit other than possibly shoring up some inheritance for yourself at a later stage , that is going to run you into a world of grief in the meantime.

Get a rental property instead.

DM will not be getting into more debts

How do you know this?

getting involved in some dreadful equity release scheme or some such

Nothing dreadful about equity release. Do it with a reputable lender and she'll be fine. She is only in her 60's and still working for heavens sake - you don't have to take all her problems on yourself. Let her deal with it and stop babying her.

and force DM to downsize and she would have to accept?

So DM WILL consider downsizing?

This thread is very strange. You're very strange

There is something extremely odd happening here

Just at this thread.

You say your mum is terrible with money and vulnerable to conmen/crazy schemes. So if SHE thinks it’s a good idea, but your financially solvent intelligent sister thinks it’s a bad idea, that should tell you everything you need to know.

I think that the thought of ‘losing’ the 275k is driving your behaviour here. But it’s not yours, if your mum had managed her finances better she may have been in a position to give you money, but she hasn’t. She’s shit with money, and will likely not leave you anything.

You need to detach from this situation OP. Living in a 1 bed flat for the next 20-30 years whilst your mum lives in a large family home is ridiculous.

You seem to think this idea will give you more financial control, but it will give you zero financial control, in reality, with you at the mercy of your DMs stubbornness to refuse to relinquish the 'family home' which is probably falling into decay through lack of investment due to her salary having to service the mortgage + this other debt.

She is the architect of her own financial misery and your Plan will mask the fact her finances are a crock of shit. Added to which it will tie you to the c of s for as long as she remains in that home.

She should plan towards moving into a flat preferably in a retirement complex so she only has to move once, less disruption and cost, with all mortgage paid off by the time she retires. If necessary, check out the prices of cheaper areas for value for money comparison as she could get something nicer if she's prepared to move to a more economical side of town,still in the radius for you and your DSis of course.

Spend the next few years working on this with her, so she gradually gets used to the idea, it does take time to adjust. This would be a far better use of your energies than bailing her out, as it's a superficial quick fix with no long term gain for any of your family.

Given that your DSis lived in the house with your DM rent free for 15 years, there is an argument that some adjustment should be made in any inheritance but back in the real world, that's never likely to happen.