Interest only mortgage payment loan over 60

[smihelp]

NC for this.
A close relative and their spouse were given an interest only mortgage 20 years ago after renting for years. The mortgage was for £100,000. There was never any chance they would repay the mortgage except on their death. Both were retired and not in great health. I believe the friend of a relative financial advisor fiddled the numbers because I can't understand how they got the mortgage.
After the death of the spouse the surviving relative was in receipt of some kind of benefit that paid part of the interest on the mortgage. A few years back this benefit changed to a loan to be repaid on their death. It is the government that pay it but only on a loan basis. The only way of repaying this is by selling the house on their death. There is no opportunity out of downsizing because the property is already very small and is adapted to their disability.

Does anyone know more about this kind of situation? Why was it changed to a loan from a benefit? My relative is upset that there will be less inheritance for their dc.

My relative still pays around £300 a month on the mortgage and is now mid 80s.

I have POA and am executor for their will so this is mine to sort out on their death. I've never had a mortgage so I don't know much about it and they can't tell me much either. The building society just says don't worry about it. The mortgage term is up in 5 years.

Thanks for reading and any advice.

My relative is upset that there will be less inheritance for their dc.

Your relative has not been paying any contribution towards the capital cost of the property for the last 20 years. What have they got to be upset about?

There's a possibility of changing it to a lifetime mortgage. We've an appointment later this week to discuss.

Perhaps the building society is saying 'Don't worry about it' because they don't want anyone to investigate whether your relatives were mis-sold this mortgage in the first place. Since you have POA and are also an executor, I'd suggest that you write to the Financial Ombudsman Service, set out what you have told us here, and ask them whether they think that there is a possibility of wrongdoing.

A lifetime mortgage (or equity release loan) is exactly what I was about to suggest.

Watch the rates, no need to switch now if the rate is worse than they are currently on, wait it out if possible. Regulated advice is mandatory. Be aware that there are lots of conditions (e.g. on the houses construction) and the process is fairly long.

But it sounds ideal for their situation. Yes, there will be less to inherit but the important thing is appropriate, affordable housing for themselves.

Yes you need to compare the rates. £100k at 4% interest is about £300 a month which is what is being paid and the property is worth £300,000 so there is a lot of equity in it. If equity release on death is a better deal go for that. if not sticking with current loan as, sadly, the person may not be around in 5 years anyway, may be best. £300 a m onth is massively less than market rent in many areas which can be £1300 a month or more for a £300k property in many parts of the country so they have had a really really good deal even with having to pay back the interest tax payers are paying for them on the loan. It would be worth finding out how much that is. Actually if the state is paying the interest does that mean then £300 a month paid is only paid by the state not by the individual?

The government pay around £40-50 a month I think and my relative pays £300.

This doesn't sound right - the SMI rate is 3.16 so they should be getting 263 a month paid via the government. Can you check their paperwork?

I checked the bank today and the mortgage payment is £300 but I'll check what the smi payment is when I'm next there but I remember reading that figure somewhere.

With an interest only mortgage they have effectively been renting from the bank for 20 years to live in a house that they never paid for - only the interest on the £100,000 they borrowed.

However they benefit significantly as the house has tripled in value and the taxpayer has contributed as well.

Don't you just love the attitude that someone is worrying about their and family inheritance, rather than an elderly relative being in a rather fragile position housing wise if the mortgage was called in- some very hard nosed folks out there

They're worrying about their role as executor, they're clearly not one of the DC concerned about their own inheritance. The relative is the one with concerns for their DC's inheritance, it's not suggested that the DC are concerned about this.

Being executor has a responsibility attached, and it's sensible to understand whet will be required in advance. In this case there are apparent complications from the financial decisions that their relative has made.

To be fair the OP is the executor. It’s her job to be hard nosed.

My mother is a similar age and has been similarly focussed on wanting to maximise what she can pass on so I can relate to the OP's relative "worrying about inheritance".

We now know after speaking to the financial advisor that this can be changed to a lifetime mortgage that is repaid on my relative's death allowing them to stay in the house with no worries about the repayment.

Good news. Hopefully they are an independent FA, not just an FA, so they can search the whole market and get the best deal available.

Was that an independent adviser?
no bank is going to evict a 90 year old
you need to take extensive advice before changing anything. Lifetime mortgage may end up costing much more

Yes, they are independent and yes it will cost more long term but will come out of the estate. The BS would expect the house sale to be completed well before the existing mortgage is up and have said they would start court proceedings if the house was not sold by that time which made my relative extremely stressed.

They have had security and benefitted from valuation increases in that time. They would still be paying rent would they not, and how much would that be on the house they are in?
No inspections, no having to move out with two months notice- there are many benefits to owning even on interest only. I work for a mortgage adviser and from what you have said there is no evidence of any figures being "fiddled" that i can see. They would have had statements and communications at least yearly explaining the interest only situation.
I would recommend getting something in writing from the building society and talking to a mortgage adviser, if only to understand the situation and likely outcomes better yourself. This does not sound an end of the world situation to me, especially with 200k equity which they wouldn't have had from renting!

I'm sorry hadn't seen your update!

@smihelp Can I ask please if the building society would or would not extend the mortgage term in the end?

They took advice from the BS and spoke to a financial advisor and converted to a lifetime mortgage which is paid back on the sale of the house after death or on going into a care home.

Yes but there is a fair chance you will still be living in 5 years. I don't want to sound harsh but given their age and disability it it likely not to be a problem.

@smihelp wise move!! Especially at this age -

@smihelp oh yes I see, thank you