Elderly dad, interest only mortgage mess!

[Pinkclouds80]

This is a complicated one but anyone with similar experiences?

My dad (72) was sold an interest only mortgage on the house he owned with my mum in 2011, for £108k. It ended in 2021 and since then he’s just made the payment every month by standing order. They’ve got in touch a few times to ask how he proposes to settle the balance and for a long time he pretty much ignored them. He’s got some physical and mental health issues and was overwhelmed, essentially.

Last year they called and were more assertive about him needing to settle the balance and he agreed to speak to a broker they referred him to about equity release to pay the balance. The house is in a very poor state of repair and extremely cluttered so when the surveyor came they said he couldn’t have an ER without doing some essential works (new boiler, guttering, roof works). We wrote to Birmingham Midshires and said give us 5 months and we will do the works and put the house on the market.

For a few reasons he’s not managed to get the works done and I think BM are gearing up to seek possession. At 72 on a state pension he won’t be able to service the interest on an equity release anyway, he was quoted about £600 a month.

I am interested in whether BM have a strong case to seek possession, given that they seem to have just let the situation drift for 4 years - every month he’s made the payment so isnt there a de facto contract of sorts? Ideally he wants to stay in the house and just have a lifetime mortgage, maybe with an order to settle the balance when he dies? The whole thing is so sketchy and BM seem to send him standard template letters about being in arrears - which he isn’t?

Another complicating factor is that while he and my mum divorced in 1998, she is still on the deeds and technically joint owner. She’s long since remarried but legally is in the picture.

Congratulations and thankyou for reading this far! Any pearls of wisdom very gratefully received

It's not just your parents' house - it's also BM's. I can't comment on your mum's stake in it without further information, but in terms of BM and your dad - BM enabled your dad to fund his share of the house on the basis that he would pay them interest for 10 years, which he has done, and that he would pay the balance at the end of the 10 years, which he has not done. That means that he is in arrears.

They do have a strong case to seek possession, because they partially own the house and because your dad hasn't upheld his end of the bargain. The fact that he's chosen to make other payments to them since then isn't relevant and doesn't constitute any kind of de facto contract. To stay in the house with a lifetime mortgage, he needs to actually have a lifetime mortgage in place - it's not something you can just drift into.

The best thing to do in the first instance is speak to a mortgage broker and see if there's any options in terms of getting a new product (be warned that at his age, it's unlikely). Otherwise, he's best off selling the house himself rather than let it get re-possessed.

Thankyou, that’s absolutely not what I want to hear but it makes total sense.

do you think he would be able to sell it on his own terms? I.e. not have them take possession and auction it? I’m not clear on the process and it’s very scary.

At this point, yes - he should still have the option to sell it on his own terms - that would be BM's preferred option too, because it gets them their money back with little effort on their part. It will only get as far as them taking possession if they believe it's their only option - so as long as you can demonstrate he's taking steps to sort it (i.e. house on the market) and that doesn't keep dragging on, there ought to be some leniency from them.

@LittleRedYoshi really grateful for the frank advice, thankyou

You've had some good advice

I do wonder if you have the full picture from your dad. I thought that organisations giving interest only mortgages were under some kind of obligation now to ensure that borrowers have an investment vehicle for repaying.

I would check the law on that. It may not pre-date 2011. The Martin Lewis website might be able to help you.

isn't your mum liable for some of this debt?

I'd expect some of the debt to be your DMs although equally she could expect your DF to have paid her rent for living in the house. But it sounds unusual that they took a mortgage out together so long after getting divorced?

What would his options be if he sold the house? It's often easier for older people to find social housing, would that be an option?

Or would he release sufficient equity to buy a smaller property and/or one in a cheaper area?

Approx what equity is in the house? Also an equity release shouldn’t need interest payments, just rolling up.

probably best to sell, pay down the debt though.

@EmeraldRoulette its very muddy but I’ve seen enough of the paperwork for it to make sense. He was told by a broker that his private pension could be ported (?) or something to pay it, but it can’t.

mum doesn’t seem to be liable as the mortgage is only his - she’s just on the deeds as they bought it together when they were married. They divorced in 1998 but never sorted the ownership of the house, madness on stilts but that’s where we are.

@Bjorkdidit if it was in decent condition it would be worth a good 550k but it’s really, really not - would need a total rip out, new windows, boiler, probably roof even, and gardens to be totally landscaped. Estate agent said they’d market for 450k so he could probably buy something with the difference (we are in a very expensive area of the southeast and he can’t move far from my brother who is very disabled and in a specialist home.)

@Ilovemyshed potentially about 300k I hope, but it’s such a complex picture.

I'd sell it at a discount to settle the loan. Then buy a flat somewhere, fingers crossed he has enough money. Before they repossess the property and he's left with nothing.

A friends partner was in this situation & buried his head in the sand for a while but basically had to sell the property (before he was forced) & pay the outstanding mortgage. He had some equity as he had bought the property over 20 years ago but not enough to buy another place. He's early 70's & still working & did admit the mortgage company had been pestering him for years about his plans to repay the debt but he just ignored them.

Attendance allowance would bring him in some more money

If your mum is still on the deeds, wouldn’t she be entitled to a share of any profit once the house is sold?

Did they sort out a financial settlement but just not get around to sorting out the deeds?

What pension does he have in addition to his state pension? If he had a pension designed to pay off his mortgage?

It sounds as if he can sell the house through an EA, and maybe then look at flats that are sold to O55s? ( I dont mean the dreadful ‘retirement villages’ ) or just an affordable small place. Flats can have high maintenance charges and ground rents so that would need looking at.

@Pinkclouds80 the thing about the pension makes me wonder if it was mis-sold in the first place

But it sounds like the best thing is to sell it and maybe look to see if he's entitled to any compensation afterwards.

He needs to sell the house urgently before the bank repossessed it. That will come with huge charges. I'm amazed that a property bought for £108k, 14 years ago would be worth so much 14 years later. Especially if it's not been looked after. I bought my house 16 years ago but it's only gone up by 40%, not 400% and I'm in the SE

Tbf the mortgage was 108k, it could have been a remortgage or had a substantial deposit down.

I purchased by first house for 82k sold it 2 years later for 150k

What about one of those we buy any house type companies. They don't pay full market value but can complete a purchase very quickly.

So the ownership is goodish news for DF

And check if he was missold the loan

Plus do a subject access request under GDPR to get all the documents they have on file.

• If DM is on the deed as a 50/50 split she owns half the market value. The lender have no legal way to take her share as she was never a party to the loan.

So if the market value at 450k
She gets 225k
If she wants to hand over the cash there could be a tax to be paid unless the divorce agreement had terms about the house.

With tax planning she can give you or DB her part of the house /cash as an early inheritance and you can use it to house your DF
https://www.gov.uk/inheritance-tax/gifts

If he got a loan it was on his half*
If there is an divorce term to give him the house the lender could seek to gain access to "her" money
If not he gets 225k which he can use to pay back the loan.

And he owes 108k plus what?

And whats the maximum amount he can pay monthly?

It can get very messy but could you afford to take part ownership of his half and go on a joint mortgage and make up any shortfall?

I worked in Mortgage debt recovery for a major Bank, so may be able to offer some insights.

I would wager that the reason no one has sorted this, is staff failings. Me and my colleagues were always appraised by how many customers we dealt with in a day. Many staff would call customers who were in arrears, that customer would make an excuse, so the staff member would move on to the next call within minutes. Their stats were great because they were speaking to lots of customers, BUT it was ineffective, as no one had really helped to resolve the issue, ie. why is the customer in arrears and what can the Bank do to help? Myself, I would always spend time with the customer, maybe rearrange their terms (make the term longer so the payments became smaller), so that there was a resolution, but of course that took time, so my stats didn't look as good! Madness! A really stupid way to assess performance, as it drove the wrong behaviours.

Anyway, if the Bank haven't started repossession yet that's good. As I see it, you need to sell the house, and it's up to you whether you do the repairs to get £550k, or sell it, as it is, for £450k.

I would be asking myself, how much would the repairs cost? Can your Dad realistically live through such repairs?

It's important that you sell it before it gets repossessed, because repossessed properties often get sold for way under value. The bank will only care that they get their £108k back. If they got an offer (for say) £350k, they will just let it go for that amount, because their debt will be repaid.

A pp said that if the Bank repossessed the house, that your Dad gets nothing. That's not true. He gets back whatever is left over. So, if the bank sold it for £350k, your Dad would get £242k back (minus any fees of course). But your dad would have lost all control over what the house was sold for - much better to sell it now, and keep control over what you sell it for.

Personally, if I were in your shoes, I'd look now to market the house at £450k, pay off the mortgage, and Dad is left with £342k. Then look to get him moved into a retirement village. My own Dad is in an Extra Care village, and it's fantastic. Everyone has their own independence, but there's loads of stuff on site, like a carvery, a bar, a theatre, a gym, gardens etc.

I meant to also mention your Mum. I presume that her and your dad made a financial settlement in 1998, so I doubt that she is expecting any of the sale proceeds. That would be highly odd for a divorced person to just let their Ex live in a house that she owned half of! She would have wanted her money in 1998!

BM seem to send him standard template letters about being in arrears - which he isn’t?

When the mortgage term ended, the entire remaining balance would be considered to be an arrears balance as he failed to repay the amount due by the agreed date. Him continuing to make small monthly repayments won't change this.

The bank are well within their rights to seek possession and to be frank, considering the time already passed, this could be at any time. Don't think the fact it's already gone on for years is indicative the bank will continue to be 'lenient' - recovery has likely either been mismanaged by their recoveries arm, which could be corrected at any time OR this debt just hasn't fallen into a priority area for them thus far, which again could change in an instant.

However, don't be frightened by misinformation like this:
Before they repossess the property and he's left with nothing
If repossession occurs then the bank are obliged to pursue a reasonable selling price as close to market value as possible. It will be less, sure, but they won't/can't allow a sale for just the debt amount. There will be a substantial amount left, even after the additional court fees etc, and this will be paid to him.

If an EA said they could market it for that, then do that asap and show the mortgage company that that is happening.

Maybe talk to them first and check that they will wait for that to happen.

Help your Dad re-clutter and get rid of stuff.