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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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Original poster

More a WWYD re- Parents and money

120 replies

PyongyangKipperbang · 04/04/2022 23:19

Been at work and thinking about it all evening.

My parents spoke to my sister and I recently about how they want to gift us some money. They are planning on giving me enough to may off my mortgage (2 years to go on a small mortgage) and the same to my sister to cover the house improvements they need or to go towards their mortgage (not long moved so a lot longer to run).

The thing is, my sister and I really dont know whether to take it. It feels wrong but I cant work out why.

The are doing equity release which straight away we didnt like but they are doing it through a specific scheme which is not one of those "back pages of the Daily Mail" jobs, the numbers have been crunched and they will still have a sizable ownership of their house and it isnt as dodgy as sister and I first thought. Their reasoning is that they would rather us have some of our inheritance now when we need it (I lost my job due to covid and need to retrain to earn anything more than NMW and my sister has had to "downsize" her career from management due to covid too).

But.......it just feels wrong! I know that my mother especially would feel a lot happier knowing that we are financially secure. I would own my house outright which would mean that whatever happens I would be housed if nothing else. My sister would have the pressure taken off in terms of finding money for house improvements that are desperately needed and they could afford when they bought the house just a few months pre covid. Security is a massive thing for my mother and knowing we had that would help her sleep at night.

It never occurred to either of us that they would do this so we are both in shock. I think they expected more of an enthusiastic reaction but we were both quite reserved, I explained it wasnt because we are ungrateful but that we have some doubts and feel a bit wobbly about it all.

The irony is that if I could do this for my adult kids I would in a heartbeat so I totally understand where it is coming from. My sister is childless not through choice but I know she would do it for my children who she adores.

I am just so torn!

And yes, I do think pride is a big part of it for both of us.

OP posts:

Original poster

PyongyangKipperbang · 05/04/2022 20:03

Well yes, but then it is their money!

If they gifted it to me with no comment, I would use it the same way to be honest.

OP posts:

shiningstar2 · 05/04/2022 20:14

My mother took out a loan on her mortgage...for her own house improvements and holidays. The arrangement on hers was that she pays a monthly amount which covers the interest on the loan. This means that there is no compound interest potentially mounting to the full price of the house For example, if she had borrowed £30000 that is the total amount which will be owing when she dies. The house will be sold when that time comes and all of the value of the house, apart from that £30000 will still be there. Maybe that type of scheme could be a consideration.

BasiliskStare · 05/04/2022 20:15

@housemaus - I would not be at all surprised if current ER schemes are better regulated now. But I am not so sure they were 10- 15 years ago - I agree people need to understand what they are signing up to but ER I would be wary of unless one has absolutely crunched the numbers ( and some don't)

Flapjak · 05/04/2022 20:16

Be aware if compound interest that accumulates on the initial borrowing. So if they live for 10 years they could end up owing 200000 on a loan of 100000

Original poster

PyongyangKipperbang · 05/04/2022 20:41

@Flapjak

Be aware if compound interest that accumulates on the initial borrowing. So if they live for 10 years they could end up owing 200000 on a loan of 100000

Thats whats really bothering me. But after reading up on the interest only retirement mortgage, it sounds more like what they are looking into. They used the words "releasing equity" which is what jumped me to thinking it was one of the equity release schemes which seemed such an odd thing for such normally cautious people to do.

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trussedchicken · 05/04/2022 21:10

You say they gave another appointment with the financial advisor tomorrow.....as they appear to be doing this to solely give the money to you and your sister, would they object to you attending the appointment? It could be really useful to make sure you understand exactly what kind of product they're thinking of taking out. They need to make sure they know exactly what will happen in the future when their circumstances change (ie death of one of them/entry to long term care/wanting to move home). That is almost always where ER can become a problem. Also make sure they understand what (if any) early repayment fees there might be as they can often be very hefty. Having said all that, ER is regulated and has some excellent future proofing features nowadays. It has a bad reputation but in the right circumstances, it can work out very well. If it were my parents doing something like this for me, I would tell them that I'd like to understand exactly what product they're taking out before I could consider accepting their very well intentioned gift. I would also always recommend the possibility of downsizing now and releasing some equity in that way if it's a possibility, instead of borrowing money through ER.

Original poster

PyongyangKipperbang · 05/04/2022 21:17

I have been thinking the same about asking to meet the FA. I know that they wouldnt like it as they consider their finances to be their business, but then they want to see my mortgage statement......so......

OP posts:

Tryingtokeepgoing · 05/04/2022 22:30

I still think that borrowing money over a long term at an interest rate that’s likely to be higher than your own mortgage, which you said would be cleared in 2 years anyway, is bonkers. To put some numbers round it, even if you’re outstanding mortgage is £50k, the interest component on that over the next 2 years is likely to be under £2k. Your parents will be paying interest for maybe 20 years, at a higher rate, on a balance that’s not reducing. At 3.5% that’s £35k over 20 years. And, they’re in debt for far longer than you would be if your mortgage is cleared in 2 years. Obviously your sister might be in a different position, but the cost to your parents will be similarly high.

HollowTalk · 05/04/2022 23:00

Why would they not just downsize? I can understand why your sister is desperate for money to get out of the situation but I really really really don't think equity release is the answer.

Ticksallboxes · 05/04/2022 23:18

I would look really hard into what your parents are proposing and what the cost implications are for you and them further down the line.

We briefly discussed equity release with my parent's financial advisor a few years ago and he advised to absolutely avoid it as the interest repayments are insane.

Obelisk · 05/04/2022 23:23

@Tryingtokeepgoing You’re completely right.

SierpinskiSquare · 05/04/2022 23:26

I’m all for parents giving spare cash to their kids but I would be very hesitant to do so using equity release. I be too nervous that they might need the money later on in life.

I get that your parents would love to be there to see how their money is helping you but I’d counter that with the peace of mind that it would give you and your sister that your parents are maximizing the chance that they will be able to afford any help they might need when they are older.

Original poster

PyongyangKipperbang · 05/04/2022 23:48

@HollowTalk

Why would they not just downsize? I can understand why your sister is desperate for money to get out of the situation but I really really really don't think equity release is the answer.

She isnt desperate, not at all but it would do more for her in her current situation than it would me.

As has been said, I have a very short time left on a small mortgage
(accidentally bought at the absolute bottom end of the 90's recession) but she has a far bigger and longer commitment than I have.

OP posts:

Original poster

PyongyangKipperbang · 05/04/2022 23:52

And the reason they dont downsize is that they love their home and have been there 35 years so dont want to. Its not a massive pile, its a 3 bed detached. If they sold up they would want a 2 bed bungalow which would cost pretty much the same!

OP posts:

Getoff · 05/04/2022 23:52

@PyongyangKipperbang

The point several posters have made, that it makes no sense for them to take out a mortgage to pay off your mortgage, if their interest rate is higher, is something you could ask the FA about. Or you could just make it to them.

HollowTalk · 06/04/2022 22:53

@PyongyangKipperbang

But that's what I meant about being painted into a corner. One day they will need a bungalow and they just won't have the equity to buy one. Far better for them to buy one now or to hold onto the entire house so that they have the opportunity to buy one in the future. When people's bones get brittle when they're older then they can't cope with stairs. It's when they break their bones they end up having to go into a nursing home because they can't manage living in their own house. Equity release will stop your parents having options in the future.

Original poster

PyongyangKipperbang · 06/04/2022 23:55

They already live in a bungalow but where we are two beds are going for almost the same price as three beds, presumably because there are a lot of people looking to downsize for reasons you have mentioned.

OP posts:

UniversalAunt · 07/04/2022 00:01

One aspect that cannot be easily quantified or popped into a spreadsheet is the value of community & ties of locality that wrap around a home of many years.

It is easy to say downsize & all will be well - I’ve done that myself. But making new connections can be more challenging as we age, by no means an absolute but it is a factor for staying put or very close by.

UniversalAunt · 07/04/2022 00:05

This Telegraph article may be helpful.

www.telegraph.co.uk/money/consumer-affairs/pensioners-raiding-inheritance-funds-stay-afloat/

Original poster

PyongyangKipperbang · 07/04/2022 00:16

@UniversalAunt

One aspect that cannot be easily quantified or popped into a spreadsheet is the value of community & ties of locality that wrap around a home of many years.

I completely agree. Our village has become the "Bournemouth" of our town so downsizing would end up costing them more because a smaller bungalow plus legal and moving fees would cost them what their current home is worth and would lose them their neighbours, their geographically close friends etc. In their marriage of over 50 years they have lived in three homes.

They wouldnt move and I wouldnt want them to.

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