Changing ownership of home for equity release

[AndInShortIWasAfraid]

My DM has called to ask if she can put one of her rental properties in my name so she can access the equity and get a loan of about £50,000. She will keep the rental income. She bought the house for £180,000 and it's now worth around £400,000 (London). She has CCJs and with my name can get the loan with a much smaller interest rate.

DH and I own a house that we are hoping to sell next year. We are anticipating it being a long and hard sell as it's an undesirable house in an undesirable area. In March 2018 the initial two year mortgage term comes to an end and we want to look for an interest only mortgage whilst we try and sell the house. We only had a 5% deposit so I think our LTV will be about 88% when we start to look at new mortgages.

Her broker is going to call me but I know nothing about equity release we don't have any!. Can anyone give me some advice on whether having ownership of my DM's house will affect us getting a new mortgage or the tax implications of appearing to have rental income? Thank you!

Don't mix money and family!

What's in it for you?

Wait- so the mortgage on your mum's rental place is then in your name but she keeps the income? And she has form on not keeping on top of her debts? This sounds very foolish. You will be liable if it goes pear shaped. Although if it's officially your property you could sell it in that scenario, I guess.

You also need to consider if you are liable for any stamp duty. For a second property stamp duty could be £22k on a £400k property! The mortgage debt will also be registered as your debt so it will affect you when/if you try to remortgage/extend your mortgage to buy again. Sounds like a crazy idea to me!

No
Don't do it.
If she needs the money Why doesn't she sell ?

So, she sells a flat to you below market value but giving her a profit. She keeps anything above the monthly mortgage fee. You have all the liability for the mortgage should she choose not to pay it. You become liable for stamp duty. She may also be liable for capital gains tax.

We have rental properties and they have been nothing but a hindrance to getting our mortgage, not only that but we had to show we are paying the mortgage and receiving the income. The income from our rental properties hasn't even helped increase the amount we could borrow.

In short. No. No. No and NO!

Don't take the brokers word for anything. Equity release can be a minefield. Seek independent financial and legal advice first. This could stop you getting a mortgage if it goes wrong and have tax implications. Personally I wouldn't do it. Your mum is far better off selling up IMO.

Thank you. I really wasn't keen on the idea and despite owning lots of homes, she wasn't at all clear on the specifics.

She doesn't want to sell as she thinks the house price will increase even more. Logically, I know it's an awful idea she is terrible with money and despite her many assets, is in debt. When she called she didn't even know that rental income was considered income even if the rent gained is exactly equal to the mortgage payment. It's just complicated by the fact that we were supposed to be moving in with her next year while we tried to sell our house. We know that we never, ever want to buy again. We've had an awful experience with the neighbours from hell and after saving for many years to be able to afford a home and having such a bad experience this has scared us off.

I was mainly worried about the tax implications and pushing us into a higher rate of tax. I guess I will have to be brave and say no.

If it goes up even more she
will have more capital gains tax to pay if she sells. It is currently 18% of the gain less allowances. I would not trust her to pay the mortgage and you will gave the debt. She should sell up and take the tax hit.

What you describe is not equity release. That is where the owner gets a mortgage, not a daughter! She sounds dodgy to me.

If she puts it in your name it is either a gift (and if she passes away in the next 7 years, it would become part of her estate for IHT

If she sells it to you then there may be CGT to pay

If you are the owner you would need to get the income and you would be taxed on it

Steer clear - if she has CCJ's I imagine they would be very interested in her disposing of assets !

I can assure you, your house won't be a ''long hard sell'' if you price it accordingly and take into account the undesirability of the property and the area, if on the other hand you're going to be greedy and deluded about it's value, well that's another matter,

As for the situation with your untrustworthy, debt junkie, Borrow to Leech mother, I can't really offer any advice

I'm no expert, but my 'this could be a nightmare' antennae went off like crazy when I read this idea.

The mortgage would be in your name and would absolutely affect your ability to then get another mortgage for your new home - not saying it would be impossible, but it would certainly make things more complex.

And: if you own the house, then you get the rent. Period. Anything else just doesn't make sense.

I would also be worried about who would be liable for the house repairs, stamp duty, who would manage the day-to-day running of the rental agreement and so on.

If you're worried about this affecting your relationship with your DM, then find a good financial adviser of your own and ask their opinion. They may charge you a flat fee (ours charged us 250 quid for an hours' face-to-face meeting and several hours' research and work) but it will be money well spent if s/he is able to tell you either "it could work but be sure to do x, y and z" or "don't touch it with a bargepole because..."

At least then you'd have a second opinion and could explain to your DM that an independent 'expert' counselled against it.

Would you co-sign on a loan for your DM, considering that she has difficulties managing money? No? Then don't do this either. Seriously, i don't even know who you are but this suggestion makes me very anxious for you.....

If this is not your mother's primary residence (assume not if it's rented), then the capital gains tax in the increase from £180k to £400k will be due. Either this should be paid at the time she passes the property to you or when in it sold in the future but if your mother takes out loans to release the equity, there may be no cash left to pay for this and all outstanding loans on the property.

It will affect your ability to get another mortgage.

It will expose you to higher stamp duty on your next purchase.

If you got complete control in return for a payment of £40,000 to your mother, it would be worth it. You would get the income which would fund the mortgage on the flat.

You could also use it to release more equity provide you with an increased deposit for your next purchase and pay for the increased stamp duty.

You would have to look at the numbers carefully.

If you never want to buy again, then it could be a way to keep on the property ladder and provide you with future retirement income.

If the income is deemed to be yours, it will be taxed and this will have to be taken into account so any impact on your taxes would need to be paid before giving any to your mother (if at all).

In the long term, by gifting it to you now, you could save on inheritance tax later.

If she gifts you the flat it will be a chargeable transaction for cgt. As it's a transaction not at arms length they will use the market value of the proceeds rather than what was actually paid - so cgt at 18% going to 28% if higher rate. Don't know what interest rate your mum is currently being offered but financially I suspect wouldn't be worth it.

Plus as the owner you will be liable for the tax on the rental income, plus repairs etc.

It also will become a marital asset I believe - so if you were to divorce your husband may be entitled to a share. Probably not something you're thinking of, but worth considering.

It sounds like your mum wants all the benefits of the second property without none of the risk.

How does your mother even know she get a loan in your name at a lower rate of interest? I'd be really worried she may have had a credit check done in your name which will affect your credit rating amongst all the other things mentioned upthread. If she can't manage her own money, even with considerable assets, do not let her put further debts in your name.

I wouldn't speak to her broker either.