Has anyone heard of this before? Re: mortgages and housing m

[Autumnleaves06]

I’m a little bit worried about a family member. They are struggling to pay their mortgage and have been in paying interest free for years. They’re in their 60s and still have £80,000 left to pay. They were told if they couldn’t pay it by 2025 they’d have to leave.

They just spoke to me on the phone and told me that they’ve spoken to someone today who has suggested selling it to a property investor, continuing to live there on a life lease and paying the investor £500 a month.
But my family member will get around £30k or however much is decided once it’s been sold to them.

Has anyone ever heard of this? It may be that I’m not aware of it, but I’m just a bit concerned about my family member as they are quite vulnerable and live alone.

Sounds like an equity release scheme. Very very poor value for money but it may still be the best option for your relative.
https://www.moneysavingexpert.com/mortgages/equity-release/

yes, that's a thing.
but family member should book a session with an ifa to discuss all options (downsizing, selling&renting) before deciding on anything.

Sounds like an equity release scheme. An investor buys the property off the owner, Usually gives them under market value, the owner keeps any equity once the mortgage is paid off and then rents the house off the investor until they die.

Can your family friend not sell and buy something smaller? Do they have much equity?

How much is the house worth? I wouldn't do that, I would prefer to sell it and buy something cheaper outright, if possible.

That's is not an equity release scheme!

I know a number of people who are coming to the end of an interest free mortgage with much bigger debts than that. It’s honestly a ticking time bomb in this country, stemming from the old endowment mortgages. Even if people got compensation for being missold an endowment, they often did not pay the proceeds of the cashed-in endowment and the additional compensation off their mortgage. And did not convert to a repayment mortgage.

Mortgage rates have been so low for so many years, so there has really been no excuse not to make capital repayments. (Obviously that has changed now.) But the people I know have spent the money they “saved” on fun stuff rather than on bringing down their debt, and I have little sympathy for them. (I am not saying this applies to your relative, OP - I don’t know their circumstances.)

If there is sufficient equity in the property for them to downsize, this would almost certainly be a better option than equity release.

Oh, and an IFA will just want to sell them a product, to get the commission. They may well not give the best consumer advice, so don’t be fooled into thinking they are anything other than a salesperson.

What income will they have going into retirement ? I don't think they would get any kind of help from housing benefit or anything unless it's classed as a proper tenancy. They should check this out unless they are confident that they can cover the rent payments long term. If it is equity release to be honest form what I've seen they don't ever seem to be a great idea.

Its something that is frequently advertised with flyers in the area I live. You sell the house to a property developer then they become your landlord. It's a different thing to equity release which is a loan against the equity. It is a standard tenancy agreement once sold so there isn't the absolute guarantee that they can stay there permanently, things do happen unfortunately.

It would be safer to sell and downsize OP. 60s isn’t that old, moving shouldn’t be a problem.

Do you mean interest free or interest only?

OP if your friend has an interest free mortgage this is quite a niche product and they should definitely seek independent financial advice.,

They’re in their 60s and still have £80,000 left to pay. They were told if they couldn’t pay it by 2025 they’d have to leave.
I’m just a bit concerned about my family member as they are quite vulnerable and live alone.
I don't quite understand the 'have to leave' comment; you can't tell people to leave their own home. I assume it means that the loan is coming to an end and the lender won't renew.
There are several things your family member could do e.g. see if they can line up a new lender (speak to a mortgage broker) or downsize so that they are mortgage-free. In the second instance, they could kill several birds with one stone if they move to a retirement home - lose the debt, have somebody else be responsible for repairs etc and have a new community literally on their doorstep. Brand new retirement flats can be expensive but older ones can be very reasonable (check that they are cheap for a good reason, not a bad one). Make sure the family member understands the concept of the annual service charge.

@senua

Can you please explain what the annual service charge is? As I’m not sure myself.

Meant to add: try to ensure that they address this now, whilst they still have the luxury of time and good health on their side. Nothing worse than trying to organise something vital when your back is against the wall.
Also, address it now whilst house prices are still good. If they have to be out by 2025 then they may only have one more spring/summer (peak selling times) in which to sell. Time soon flies!

If they have no repayment vehicle for the outstanding capital at the end of the term the the mortgage company effectively own the property. Are they able to pay off any capital as well as interest? There will be companies offering all sorts of equity schemes but they sound risky.

How much is the house worth?
The sensible course of action is to sell, pay down the mortgage and buy something with the rest.
The next sensible thing is to look carefully at equity release. Which will cost them nothing I their lifetime.

Well the IFA needs to make their money some how…… unless people are prepared to pay for advice, that’s what will happen.

OP Try and find a recommended IFA to speak to.

This article might help. It’s about lifetime mortgages.

It’s a monthly/annual charge to the home to cover any live in help, alarm systems cleaning of communal areas etc. The better the facilities, the more you will pay.

I’d be wary of buying one as they are very difficult to sell on. And the homes will often want the service charge etc to be paid, even if the accommodation is empty and being sold.

Typically, retirement properties are flats within a big building. The person is responsible for the interior of their flat but the landlord looks after the big building.
So the person pays for wallpaper, carpets, etc but somebody else takes care of the big responsibilities e.g. repairs and maintenance to the building (leaks, roof check, service the lift, clear gutters, cleaning to common parts, etc), running a cafe/restaurant, gardening, insurance, etc, etc. There may also be a warden on site who does welfare checks and organises socials. You need to check who pays for gas, electric and water (person or landlord). The person is still responsible for their own Council Tax.
In a 'nice' retirement home, the service charge will be based only on the cost incurred (plus a bit for the Reserve, the 'rainy day' fund). In other homes there may be an element of profiteering. Ask to see the lease (which lays out the rules) and a copy of historical records so you can see it in action.
Effectively, a service charge is paying somebody to take away the hassle of home ownership.

I know MN generally disapproves of retirement homes because they think that they are all of the latter kind (greedy and grasping) but there are some run by Housing Associations or Charities which fit the 'nice' description.

This happened to someone I know, they managed to get a mortgage interest only again which was cheap rent basically. I think there are over 69s mortgages. Might be worth speaking to a financial advisor.

I’d be wary of buying one as they are very difficult to sell on.
Which is why I said that second-hand ones can be bought cheaply.
And the homes will often want the service charge etc to be paid, even if the accommodation is empty and being sold.
Which is entirely reasonable. Say the service charge consisted simply of the Building Insurance of £2,400p.a., split between ten flats. The s.c. would be £20pcm per flat. If somebody died in June and stopped paying their s.c. then the building would be £120 short - how are they supposed to make up the difference? Either (a) you have to charge all flats at all times (whether occupied or vacant) or (b) you 'overcharge' to cover potential shortfalls.
This is why second-hand flats can be a bargain: the relatives are desperate to offload the obligation of the ongoing service charge.

Landlords usually charge retirement flats a percentage, called a premium, when they sell on (by its nature, often on death).

Some schemes charge a realistic service charge (i.e. cover their costs during the year) and a small premium (say 3%).
Other schemes may have cheap s.c. but they cover costs by having a huge premium (say 30%).
This can cause tensions: the first is better for beneficiaries relatives, the second (live now, somebody else pay later) is better for the tenant. When it comes to light, it can cause additional stress at a stressful time.

My point about being hard to sell, was relating to the point that presumably, at some point the relative of the OP will be in that position. The person is only in their 60s, I’m sure there are better options than retirement flats.

The person is only in their 60s, I’m sure there are better options than retirement flats.
Everybody always thinks that they are too young for retirement homes, that they are for other people.

The family member is described as "quite vulnerable and live[s] alone" and doesn't seem very savvy. It might suit them!
However it needs careful research.

Sorry, interest only, of course. 😳