PIL want us to buy their house

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Anyone have any advice or experience with the following situation
My PIL are in their early 70s and in good health, they are struggling with cost of living increase and although mortgage free have ran up some debts and just not managing to live on their income well. Their only source of income is the state pension.

Their home is worth approx 220k. They want to either do an equity release or for us to buy their home and they pay the mortgage on it. We have reservations about the second option encase they spent all the money and couldn’t pay the mortgage.

Does anyone have any experience with this?

Thanks

I would not offer to buy it. They need to look at equity release or downsizing.

If they are on state pension, they won’t be able to pay the mortgage and they will run down the cash a lot faster than they expect.

They are already not living within their income. How will they afford a mortgage on top?

Equity release probably not the wisest financially but might be only option when other avenues exhausted. Ideally they should sell up and downsize.
don’t take their financial situations into your hands. They will end up not paying you.

I really think they should not do equity release. They would live to regret that.

How do they think they could pay for the mortgage on it when they are both on state pensions and can't manage as they are?

Their only option is to sell it and move to a smaller place. That would give them lower bills and some money in the bank.

Just be careful if they look at flats though because of the service charge.

Could they downsize so they could pay off their debts and have a little extra left over?
If they do equity release , the interest is just rolled over every year, and as they are only in their seventies , there is unlikely to be anything left when they go, or for long term care.

Where they are going to live after selling it to you? It’s a bit unclear

This. Paying the mortgage will be more than currently. Although they’ll have the money from the sale they’ll blow through it quickly and do you have the funds to pay for a second home? Deprivations of assets? What if you need to sell it? You’ll pay stamp duty on a second home and have a crap mortgage rate on a buy to let home.

If they're in good health could they not work? Plenty in their early 70s do.

If they sell you their home they won’t be able to continue living in it , we were told when writing wills and setting up POA. Inheritance tax issues I think

This🖕if they can't afford to live within their means now how are they going to find additional money to pay a mortgage/rent? What will you do when they default/stop paying rent (highly likely if their money management is poor). Can you afford to sub them for the rest of their lives?
They need to downsize to a flat. Not all flats have problematic service charges especially those where v the freehold is shared between the leaseholders.

Don't do it.

They need to learn to live within their means ideally.

Best thing would be for them to move somewhere smaller and cheaper and free up capital.
Equity release - never a good idea, what will they do when all that moneys gone?

developments for 50+ /60+ etc are often a lot cheaper than similar properties on the open market - there are service charges, but when I calculated it for my Dad a few years ago; there wasn't a lot of difference between the service charge and what he was paying for general maintenance, gardener, window cleaning, insurance, etc.
Plus the comfort of having a warden available as he became more infirm, company around him, etc was useful.
Utilities were very low as it was a modern well designed building.

As I understand it, OP will get a mortgage to buy the house off PIL. This will give PIL £220 cash from the sale of the house, from which they can pay the mortgage payments for OP. This is why they can pay the mortgage even though they're not coping at the moment with just their pensions and no capital.

Where will they live? Is the idea that they will continue to live in the house? So where will OP live? Either OP will be paying rent and seeking a mortgage, or will be seeking a second mortgage on a second house. I can't envisage mortgage companies being happy about a third party being responsible for the repayment, so I think this is a non-starter.

Or will PIL vacate the house and OP give up their current living arrangements and live in it. This will make it easier to get a mortgage, but PIL then have to find themselves somewhere to live and this will eat up the proceeds of the sale.

They need to downsize to a flat. Not sure this will help. £220 isn't a lot for a property, how much would they need to pay for a flat, and how much equity would this release after the costs of moving have been paid?

Saying that older people should downsize is so naive. The cost of moving house quickly eats up any equity.

The house next door to me has one less reception room and one less bedroom. Yet if I sold mine and bought that, I wouldn't make a penny after estate agents fees, stamp duty, legal fees and moving costs. Then there's an the extra stuff like redecorating or flooring that needs replacing etc etc.

There are many types of equity release, including 'lifetime mortgage' which you can pay just the interest on and hence it doesn't roll up. Property then doesn't have to be sold till last person dies or goes into care- if they released say £65k , they would have about £400 a month repayments- which if they kept cash from the 65k should be very doable- really depends what level of debts they have.

In the house and use the equity to pay the mortgage and top up their income.

Not that I would do this, but a better solution would be for them to sell their house and move in with you and pay a small rent/contribute to your mortgage/bills.

I don't have experience of the mortgage situation but I wouldn't want to take on that responsibility as there's no guarantee they would/could continue to pay. Not sure any mortgage company would agree to it anyway.
My parents did equity release 15 years ago when in their seventies after discussing it with me and my siblings (we actively encouraged it) and the interest is now as much as they originally borrowed and will continue to build up.
It did look like a poor decision for the first few years but the amount owed could never exceed the value of the house unlike some earlier versions of equity release. The house has since tripled in value so there is, for now, plenty of equity for us to inherit. (Much to Mum's relief - she definitely had reservations)
General consensus is that equity release is not a good thing but it's actually a great thing for the homeowner. Why struggle financially or move into a tiny flat when you have an asset you can use?
It's potentially not a good thing for any beneficiaries but, as is often quoted on Mumsnet, no one is entitled to an inheritance.

Maybe. However your ongoing costs (council tax, energy bills etc) might br reduced enough to make it worth considering for long term savings.

No, no, no
unless you have spare money to help them .

If they SOLD the home to you they would be able to continue living there with no tax consequences for them. You have the home they have the cash. No loss of value to their estate. You would pay CGT on sale on increase in value as not your residence so doesn’t qualify for relief.

it if it’s GIFTED to children there can be issues with IHT. (You have the home they have nothing) However it’s only going to be an issue if the estate is valued over the IHT tax free allowance which for a married couple with no lifetime gifting is potentially £1m. With a property value of £220 this may not be relevant. The issue is that the gift is a ‘gift with reservation of benefit’ (GROB) ie retain the benefit of living there. If it’s a GROB it’s still included in your estate on death (even though you don’t own it anymore) so can mean more IHT is payable (but only if the total takes you over allowances)

On other posts, people normally recommend speaking to Stepchange or Citizens advice about debt as a starting point. Secondly, to look at their income & expenditure.

Suggest, do they have a spare room that they can rent out for extra income. As per info on Government website, a person can earn £7000 tax free per year.

Suggest selling & down sizing, should be an option once all other options have been investigated

It is not your responsibility to bail them out of their situation

If it's just state pension you could check if they are entitled to any further help with pension credit top up or maybe they could get a lodger to help top up their income. Try to support them in finding ways to help themselves without you taking in the burden

If you got a buy-to-let mortgage, the money they would receive from the sale of the house would be used to pay you rent each month, at the market rate.
You then use their rent money, to pay the mortgage payments, in the same way as you would for any other rental agreement. You just need to ensure a proper tenancy agreement is put in place, to prove market rent is being paid so they can’t be accused of deprivation of assets.
You will need to declare the income from the property on your self assessment tax return.
But generally seems like a decent solution providing they don’t blow all the money they receive from the sale of the property on something else.

(Edited - as I think previous poster is correct would not be deprivation of assets in terms of care if they sold at market rate and got the cash).

If you own the house your parents can't just pay your mortgage with no tax consequences. They would become your tenants and money they pay treated as rent.

You will be a landlord and should be completing the land and property pages of a self assessment tax return and paying tax on the rental income. If you are higher rate tax payers (or your share of the rent received pushes you into the higher tax band) then mortgage interest is not fully deductible as an expense.

So for example if your mortgage is 1k each month and your parents pay you 1k each month (ignoring other expenses for the moment) this will not break even. There will be tax to pay on equity in the capital repayment part of the mortgage- and if you are or become higher rate tax payers also tax to pay on the interest part of the mortgage.... and expenses of course including annual gas check, insurance and maintenance.

There is a reason landlords are selling up. To cover your mortgage (say 75% mortgage/25% equity at current rates), cover your tax and cover your property maintenance so you can break even the rent would have to be high. If you charge them £1500 each month their money (all of it even without deducting debts) would only pay the rent for 12 years - say 15 if investments did ok- what then? When you own their house and have a mortgage to pay and their savings have run out again?

Also re care fees if one of your PIL needed care their half of the freed up house equity would be considered to pay for it - where if they both live in their own home the value of their home would not be considered while their partner still lived there.

If you have spare cash available you could simply loan your PIL some money and have a charge registered against their property to ensure this money is repaid to you when the property is sold. E.g. loan them 20k and put a 20k charge against the property to ensure that you get it back.