Asking for advice on behalf of my wife.

She co-owns her mother’s house with her brother and sister. It was gifted to them several (10?) years ago with legal provisions for the mother to live there until she no longer wants to / can. My mother-in-law is 70 this year and in very good mental and physical health.

The property is worth ? £150k (I’d guess) and they’d like to take out an interest only loan against the house of around £20 – £25k with the balance to be repaid when the house is sold. She isn’t aware of the plan but the money will make a big difference to her.

We’re ex-pats and have left it a little late to sort out this trip home.

1) is walking in to a bank(s) and doing this form of loan going to be the best way to release some equity from the house? None of us are really in a position to simply lend her the cash.

2) my wife and her two siblings are close enough. Much closer to her sister and trust her 100%. Will there be a way to arrange the loan against the house with one signatory (my wife) living in Thailand without lots of Fed-Ex costs, delays and waiting?

Thanks

edit: the house is owned outright

Hang on…

She isn’t aware of the plan but the money will make a big difference to her.

Who is “she” and “her”?

If you mean the mother, then you should tell her if you’re planning on digging the equity out from under her. It puts her home at risk. A small risk perhaps, but…

I’m afraid you are all going to need some good legal and tax advice before you launch in to this and no, it isn’t going to happen quickly or easily. There are implications for IHT and possibly stamp duty if anyone in the arangement wanted to buy another property.

Hang on #2:

What is the money for?

My mother-in-law is 70 this year and in very good mental and physical health.

I’m guessing not care fees then. If she’s in good health and mortgage-free, then why does she need twenty grand?

Bear in mind you wouldn’t be lending it to her; you’d be giving it to her. The equity in the house is your inheritance. You want to release a chunk of that and give it to her to spend.

is walking in to a bank(s) and doing this form of loan going to be the best way to release some equity from the house? None of us are really in a position to simply lend her the cash.

Please research the products available before “walking into a bank”. They range from the completely unscrupulous to the merely unwise. And once again – you wouldn’t be “lending” her anything; you’d be lending yourselves some money from your inheritance, and giving it to your mother in law to spend.

And if I’ve misunderstood, and the equity release isn’t for your mother in law but for yourselves, then whilst not illegal, would probably go against the spirit of what your M-I-L was trying to do when she gifted you the house. By mortgaging it, you’d be jeopardizing her security (and keeping her in the dark about it) in order to get your inheritance early.

without lots of Fed-Ex costs, delays and waiting?

Y’know, yeah, you should expect to have to send and receive some documents. And since you’d be taking out a loan secured against a house, the bank will have to conduct checks and searches on the property.

Sorry to be negative but this whole thing sounds like it’ll end up on Watchdog one day. The discussion I’d be having with my family would be

1. How much do we need this money and is this the only way we can raise it?
2. We should discuss it with Mum.
3. Let’s research the mortgage/equity release products available so we don’t end up ripped off and our mother homeless.

Hebden – that’s a good point. ‘her’ and ‘she’ is the mother. We were or are planning on paying the repayments between the three siblings.

Jersey – hadn’t thought of that. The sister and her husband own several properties (6?) And my wife and I were looking to buy a couple this year. Off to find a financial advisor then!

The sister and her husband own several properties (6?) And my wife and I were looking to buy a couple this year.

None of us are really in a position to simply lend her the cash.

mmm, I presume if you’re thinking of buying two properties you must have a large sum of money for the deposits.

We were or are planning on paying the repayments between the three siblings.

And on another point does the mum just need cash to get by every month or does she need a large amount of capital for something?

If it’s just for a monthly income then what’s the point of the loan – the 3 siblings just chip in the same amount each month and stick it in the mums bank account. The loan makes no sense.

She co-owns her mother’s house with her brother and sister. It was gifted to them several (10?) years ago with legal provisions for the mother to live there until she no longer wants to / can.

Is the mother not an owner of the house at all then? That seems a bit odd given the other legal provisions. I’m more aware of similar trusts where the siblings would have an equal share in half of the house but 50% still being with the person who’s home it is. Unless the mothers name is not on the deeds at all (and the legal provisions don’t give her a security over the house) then I’m not sure how you can do this and keep it a secret from her and all the people with an interest in the house need to be party to the loan and share the liability.

We looked briefly at a similar arrangement (but not in secret) with my mum’s house – which me and my brother share 50% of). A fly in the ointment was for any loan she’d have to be a joint applicant – even though it would have been myself and my brother covering the repayments we could only consider the length of loan (and loan providers) that would be granted to someone over 70.

Secret or not I’d be a concerned as to whether securing debt (and therefore some degree or risk) against her home would be unsettling for her – the whole point of those legal provisions being for her to feel settled and secure.

OP,

I think what all the replies are getting at is that releasing equity from an elderly relative’s home should be considered an absolute last resort; it’s expensive and wasteful to trade future security for present cash (and pay interest for the privilege), unless you have absolutely no choice.

To risk your mother’s home and keep it a secret from her, even if it’s possible, is immoral.

If one of your relatives owns six houses and you’re thinking of buying “a couple”, then I doubt that you as a family as so hard up that you can’t find another way to raise some cash, for whatever you want it for.

If your sister and siblings own the house then equity release is out of the question unless the mortgagor is aged 50+ – I am also not entirely convinced that an equity release provider would be happy lending if they knew that the resident of the property was not the owner.

The interest roll-up could be crippling also on a true equity release lifetime type mortgage. If as you say the MiL is the picture of health she could go on to age 90+ – 20 years of rolled up interest on £20-25k could wipe out the equity in the property.

However, if they do own the property then they could simply remortgage it on an interest only basis and make the monthly mortgage payments accordingly. Again, there would almost certainly be a proviso that your MiL would be asked to say a document which states she would leave the property in the event of it being repossessed by the lender (very common for any resident of a property over the age of 18 who isn’t the mortgagor – protects the mortgage company from lenghty eviction battles etc).

Again the only caveat is that interest only mortgages are very hard to come by these days – most lenders have stopped offering them however £20k is within the realms of what a 2nd charge secured lender may consider but again whether there are any interest only products available on the 2nd charge market I don’t know.

If the property is in trust then I am not sure what the process would be.

Given the relatively small sum involved is there a reason that such an amount could not be secured against your property or her siblings property(ies)?

I’d also want some watertight contracts in place between the siblings – even close families can be torn apart when monetary issues get out of hand.

Ultimately this is firmly one for a good financial adviser / lawyer to properly assess the situation and wouldn’t be something I’d want to rush.

To clarify / answer a few questions;

The money absolutely isn’t for us and while she is unaware of last night’s slightly tipsy discussion, she would of course have been made aware of the situation and how the money was (going to be) come by before anything was done. We liked the idea of the money as a lump sum as we felt it was slightly patronising for her to be on an allowance of any sort. An equity release would appeal to her, we think, because it isn’t a ‘lend’ of money from her children. It’s her money or assets being used. She wants to leave them inheritance. None of them want it and would much rather she spends her money enjoying herself be it holidays, better sky package or whatever she feels like.

The reason we had the conversation is because she asked her other daughter for a fairly small loan. She’s a proud lady and will have spent weeks worrying about asking. She doesn’t need such a large sum up front but as I said, she didn’t have the amount to hand but is sitting in a mortgage free property. The house is entirely and equally owned by my wife, her brother and her sister, all done perfectly properly by a lawyer giving the mother the right to live in the house as long as she wants. The mother is no longer on the deeds. Of course this was done to minimise inheritance tax and other liabilities.

The two properties my wife and I are looking at are relatively small and will take most of our savings. We aren’t really in a position for a lend of money directly and I don’t think my MIL would like it.

Thanks for all the replies. This obviously isn’t as simple as we imagined it would be. We thought that getting the cash secured against something so much more valuable would be pretty easy as well as being the obvious solution. Financial advisor’s back next Monday so got a meeting then.

If your MiL is not the owner of the property then a true roll up type equity release mortgage is out of the question and in any event would be ahugely expensive way of doing things – assuming she lived to age 90 you’d be owing nearly £60k assuming an interest rate of 5.31% (equity release rates are somewhat higher than normal mortgage rates).

By way of a comparison I have had an offer through through from Hitachi Capital offering a £25k unsecured loan at an APR of 3.8% – repayments on this would be £457 pm over 60 months with a total repayment of £27444.

A straight repayment type interest only mortgage would be cost effective but you would then have to have a way of repaying the capital at the end – either a remortgage or property sale.

IMO I would look at the unsecured lending route first off – least long term risk but a financial adviser will have more knowledge of specific products to suit.

Yes a loan is a good way assuming the house was transfered into your names (danny’s idea is a good one too). Our covenyancing solicitor would accept scanned documents but we had been in originally to hand over passports, sign other docs. Fed Ex costs nothing if you did have to go that route and its only the signature page away (unless they want every page initialled) You may find the bank a bit reluctant to le d mkney against a non-UK salary to a non-resident borrower. Worth a try though.

Good luck and a quality idea.