Posted on 15 February 2016 by Mike
At the beginning of 2015 my mother died leaving me a 50% share of a property in Hampshire in which my elderly stepfather currently resides. He and I have a good, mutually supportive relationship. When the 50% ownership was transferred to me the Land Registry put a market value of £150,000 on my share. Is there any way of being able to sell my half of the property while, of course, preserving my stepfather's right to remain there and live out his days in an untroubled, unworried way? As a further point of information I currently have a property in Devon valued at £225,000 on which I currently have an outstanding mortgage of a little over £114,000. I am a editor by profession but unfortunately I was made redundant. My birthdate is 1 July 1954 ,so while I am constantly applying for jobs it is increasingly difficult largely, I think, due to my age. Can you offer me any advice?
Thank you for your enquiry via our ‘Ask the Experts’ section of our website. I assume from your comments that your current income if fairly low, which would rule out obtaining a standard mortgage, especially in view of the mortgage on your own home, and that you live in your Devon property. I also assume that the property in which your step father lives is a house, but should it be a flat the length of the lease might restrict options.
There are a couple of solutions which would achieve your objective, a lifetime mortgage and a bridging loan. The first would require you to sell your half of the property to your step father and thus in theory you would only need the money for a very short period. A bridging loan would give you the option of retaining your 50% share or sell it to your stepfather.
Obviously, either way you would actually only need the money for a short period and one of many factors to consider before deciding which option is better for you is whether you would want to repay all or some of the mortgage after it has served its purpose or retain it for some other purpose. Whatever you do your stepfather would obviously have to be in full agreement and what his Will, assuming he has one, stipulates in respect of his current 50% share of the property may influence the best way forward.
The amount one can borrow on a lifetime mortgage is based on the age of the borrower, and if the property is jointly owned this is decided by the age of the eldest owner. Also the property has to be a main residence and so for this solution to work you would have to transfer your 50% share of the property to your stepfather, which would then allow him to secure a lifetime mortgage and transfer the proceeds to you, effectively as payment for your 50%. Your 50% share is obviously worth more than this and so this need to be taken into account.
I expect the property will have seen some increase in value since the the probate valuation but based on that valuation the £62,500 you need would be only 21% of the value. The maximum an 80 year old could borrow on a lifetime mortgage is about double that but by borrowing less you will have more options and probably qualify for a better rate.
The interest rate would be fixed for the remainder of your stepfather’s life, or until he goes into care, and rates start at 5%. The interest is rolled up, which is why this type of mortgage is available without proof of income. At 5% the mortgage debt would double every 14 years but some of these mortgages offer the option to make payments, which effectively means one has the option to pay the interest to avoid the debt increasing.
Most lifetime mortgages have early repayment charges, which can be onerous, as they are not designed for short term borrowing. Therefore this option is probably more suitable if your plan is to use the funds for something else after they have served their primary purpose.
The set up costs and interest rate on a bridging loan will be higher than a lifetime mortgage but nevertheless if you plan to repay the money after securing a Spouse Visa for your wife this will probably be a better, cheaper and more straightforward option. Interest would be charged monthly and so obviously the shorter the period for which you need the funds the less interest you pay. The key factor for a bridging lender is the exit strategy and so although income proof is not critical they would have to be comfortable with the repayment strategy and so might want to put a charge on the savings account.
If you would like to explore the options in more detail please contact us and we will be happy to make a firm recommendation after we have discussed this in more detail with both you and your stepfather, who will obviously have to fully in agreement with any arrangements.
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
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