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

All they'll end up doing is using the equity to pay the mortgage. They've already proved they can't live within their means, how are they going to do this with another, large, bill per month.

200k, if split over 20 years, only gives them an extra 10k a year, which the mortgage payments, could very possibly be more than than this per year.

Equity release ain't a great idea either.

Would they be better off down sizing, which will give them cash to pay off debts. and cost less to run a smaller house/ flat?

I'd also find out what they are spending on. 2x state pension is just shy of 2k a month, plus any other pensions, is enough to live on if you don't have a mortgage to pay.

If they can’t afford to live now, this will not help so don’t get involved. They will carry on living beyond their means, I 100% guarantee they’ll take you all on a big holiday to say “thank you” and then next thing they’re not paying the mortgage or equity people.

But do help them, if you can, sort out the COL issues. What is the debt situation really? Is it that they have run up cards to maintain a pre-crisis lifestyle and now can’t get any more?

There has been good advice here - first, they need to work out what the debt really it, get as much as possible onto interest free cards to start clearing them & cut spending so no day to day costs are going on credit.

They should take a look at Martin Lewis to be sure they’re doing everything possible to control their outgoings. Every £10 spent on a phone contract they could switch to a cheaper one is £10 that could be chipping away at debt with.

Don’t dismiss the idea of a lodger out of hand - it’s a really solid suggestion. Even a small room could be snapped up if it’s clean, comfortable and competitively priced.

Working. At their age there are plenty of jobs still available, annd if they don’t want formal employment, even a couple of weekly cleaning, gardening and pet sitting gigs could be enough to pay £500 a month off the card debt.

Yes I was referring to the post I quoted about inheritance tax consequences of selling/ gifting a house. If they pay you money to live there then income tax due.

Most btl mortgages won’t allow renting to family members.

If you buy their house you will become their landlord, which comes with tax implications for you as pointed out by pp. If you don't charge them market rent then this could be seen as deprivation of assets. You need legal advice. Plus like everyone else had pointed out, how will they find the money for rent if they are currently mortgage free and are struggling to cope?

Do not enter into an open ended financial obligation you cannot control.

Or the mumsnet version: Don’t set yourselves on fire to keep others warm.

Ive been through a version of this dilemma with my own parents and it opened my eyes to pretty epic levels of entitlement and snobbery. it's been quite heartbreaking.

Do you really know the extent of their debts? (I didn’t and they refused to think about it)

Do they have life insurance and/or a plan to pay the mortgage if one of them dies. Mine didn’t

Who is on the hook for maintenance and improvement.

Will you realistically enforce an agreement if they don’t pay the rent?

Fundamentally and as people have said, they can’t afford this house so they need to make a different plan. This might be renting until savings run low and they become eligible for housing benefit.

Good luck and remember it’s absolutely fine to prioritise your own needs in this situation.

No idea what area its in, but finding somewhere smaller thst they can afford after the costs of selling and moving may not be easy.

Are there any retirement developments near them that they could move to? My widowed mum sold her house and bought a 1 bed flat in a retirement village and loved living there as it was very safe, beautiful gardens professionally landscaped and lots of people her own age around to socialise with.

Maybe suggest they visit their local Citizens Advice to discuss their finances, budgeting and get some sensible options. Equity Release schemes are a last resort in my opinion.

And what does she do if they can't/won't pay the mortgage - evict them?
Its a really bad idea OP for a whole host of reasons

If your pil are getting 2 full state pensions then they have a monthly income of
£1906 per month and no mortgage.

They need to get financial advise and never mix your money with them because they obviously spend beyond their means.

My dm has a monthly income of £1200 and has savings.

Do not become financially embroiled with people who can't manage their own money. And don't become a landlord to anyone you are not prepared to evict if absolutely necessary.

Absolutely not. I would assume they fully intend to not pay the mortgage at all. What are you going to, evict your elderly PILs? No.

If they’re planning on paying you rent as a way of paying the mortgage and hoping to claim Housing Benefit they won’t be able to as it will be deemed as a contrived tenancy. Have they had a recent assessment to see whether they qualify for pension credit or council tax benefit? They need to see a debt counsellor

They also won't qualify for much with £200k+ in the bank!

have ran up some debts and just not managing to live on their income well.

Then they need to reconsildate their debts! Its not a get a mortgage sitation. Its about consolidating their debts, getting a better repayment scheme and managing their money better.

You taking on a mortgae for them won't change their money management skills. Thats what needs to change.

Get them to citizens advice to find out how to do this. This is their bread and butter work.

They need to examine their outgoings better. If they are mortgage free then actually even if it is just the state pension, I'd wonder what they have racked debts up on and why they haven't thought to address the situation much sooner. You know better than us what their lifestyle has been like - but I bet it hasn't been entirely fruggle.

This is their problem to fix. You getting them a mortage won't fix that problem. It will just allow it to get worse. They need to live within their means. And yes that may mean getting a parttime job in their 70s. (My parents are both in their 70s. Both are retired BUT they both volunteer several days a week to keep active.) The alternative is to downsize, but they don't want to do this either. Why? Why is the solution for you to bail them out rather than them take responsibility for their own finances?

Is this coming with emotional blackmail? Cos if it is, its abusive

I stress, this is their problem to fix. You can't fix it. Even if you took on a mortgage it would not solve the problem - it would just create problems for you.

Don't do it.

You buying their house is a complete non starter.

You'd be liable for higher rate stamp duty if you already own a house, or lose your first time buyer advantages if you don't. You'd pay capital gains tax when selling, because it's not your home, and income tax on their payments towards the mortgage. And have to meet (and pay for) all standard landlord obligations - safety check, fire detection systems, energy efficiency limits etc. A mortgage company wouldn't touch a BTL that's let to family and former owners. If they default you're stuffed. If they need care their whole asssets will be counted, not assets minus house. Plus IHT/gift with reservation of benefits/deprivation of assets problems if you can't prove you bought at exactly the market price.

Not even worth looking at.

Equity release is at least worth investigation. It's likely to be a bad plan, but not as bad as their other one. And for some people who do very careful research it can be the right option.

But the best option is likely to be lowering their ongoing costs, rather than trying to scramble up funds to meet living costs they can't really afford.

There's no guarantee they will be in a position to pay towards the mortgage, they're not managing within their means as it is, also what happens if get dementia/need to give a Power of Attorney as they're struggling to sort things - something will need to be in place prior to that to make it clear it's ok for whoever Power of Attorney is given to (likely to be DH!) to take money out of their account and give it to both of you.

What's their present income? Do you know why they're over spending? My DM receives £171pw pension, plus heating allowance and has a policy that pays her £50pm. She has a good sized bungalow, has heating, eats properly and manages (I'm not judging them, but they need to look at how they're overspending) .

And the OP would need to pay tax on the rental income and comply with all legislation that landlords have to comply with. And indeed many BTL mortgages don't allow you to grant tenancies to family members.

You are absolutely right, I do apologise! Got confused there , probably one good reason not to take important advice from strangers on the internet!

Equity release is often a disaster. Buying the house off them has considerable implications for inheritance tax. My suggestion would be to go through their finances with them, making sure they are claiming benefits if appropriate. Discuss whether they can sell anything or earn money.

If you can afford it you can then make them a loan, secured against the house, to pay off debts. This would need to be drawn up by a solicitor and you would all need independent legal advice. The loan can either be repaid by them gradually or from their estate when they die and as long as you can demonstrate that the purpose was not to reduce inheritance tax then it should be fine. Up to you if interest is chargeable on the loan and if so at what rate,

I believe they could gift it to you but they continue to live there for the rest of their lives. The problem though is that they need to release cash so that wouldn't help. If they live in an area where property prices are low it would make sense to downsize. Equity release is another option, I don't know if it's a rip off. You need professional information and advice, but it's good that your DPs are looking to the future. They could be around for a long time yet so need to be worry free.

They need to review all their spending to see if there's anything they can get down, and also speak to a financial advisor.

I'd be really reluctant to take on the ownership of the house. What happens if there's some sort of big repair that needs done, who pays for that? If they fall ill and need adaptations/a stairlift etc, who pays for that? What happens if they don't sort themselves out financially and don't pay the mortgage money?

If there's scope for them to downsize (and I realise this is really dependent on where they are) then I'd steer them towards that as a first option. Although they're in good health now they are getting to the point where they need to think about the future and that involves getting onto a sounder financial footing and also thinking about getting something smaller and easier to get around.

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I believe they could gift it to you but they continue to live there for the rest of their lives.

Really, really, really bad idea. Quite apart from not fixing the original problem, this would be a gift with reservation of benefits and deprivation of assets.

I've seen flats for over 55's for under 100k

So, yes they do have options to sell & downsize

"If you can afford it you can then make them a loan, secured against the house, to pay off debts. This would need to be drawn up by a solicitor and you would all need independent legal advice. The loan can either be repaid by them gradually or from their estate when they die and as long as you can demonstrate that the purpose was not to reduce inheritance tax then it should be fine. Up to you if interest is chargeable on the loan and if so at what rate,"

Unlikely they'd be able to afford any repayments, unless they change their current lifestyle.

On death, if OP is the sole heir (seems likely), her loan would effectively be lost as it would be deducted from the estate to be repaid to her, then she receives the balance !