Q I read in one of the other papers that banks are going to move people in their 50s and 60s on to lifetime mortgage deals, targeting people who have interest-only mortgages and a large outstanding debt.
This basically describes my mum. She is 62, lives in a house worth roughly £200,000 and still has a mortgage of £100,000. For various reasons, it is unlikely she will be able to pay back the full amount when the term of her loan ends. She could downsize but the £100,000 she would have to spend won’t buy her a property in the area where she wants to stay because of family ties and grandchildren.
She could wait to move on to one of these lifetime mortgages, but doesn’t have a retirement income other than the state pension and also we wouldn’t get any inheritance as the bank would get the house.
My mum, sister and I have decided that the best option would be for my sister and me to buy the house for £100,000, pay off my mum’s mortgage and let her live there, while my sister and I pay a joint mortgage of our own. I currently I live with my mother and commute between my girlfriend’s place in London and Essex (where I work). My sister is married with two kids and has no intention of moving in with my mum.
We could both afford the £100,000 individually, but as I don’t currently own and to reduce risk we decided doing it together made the most sense. My question is this: can my sister and I get a mortgage together on a house that my mum will be living in? And will my sister get a joint residential mortgage if she doesn’t intend on living there?
We thought this was genuinely the best way to keep my mum in her house, obviously we realised it would also benefit us, but I’ve heard that mortgage companies would be unwilling to lend as my mother will be living there and my sister won’t. MM
A You are right in thinking that your mother is just the type of borrower that banks have in mind for their lifetime mortgage deals. However, it is not true to say that people in their 50s and 60s who have a large outstanding interest-only mortgage will be moved on to a lifetime mortgage deal without their say-so. Lenders plan to offer lifetime mortgages to people, like your mother, who have no other way of paying off their mortgage at the end of its term as an alternative to being forced to sell their home to pay off the debt. If your mother’s lender made such an offer, and she accepted it, she would have the right to live in her home until her death or until she moved to a care home. Contrary to what you say, she wouldn’t need to use her retirement income to pay the mortgage interest as it is rolled up and added to the original loan and only repaid when the house is sold.
While it’s true that having a lifetime mortgage can erode any inheritance, it is not the case that the lender gets the house. When the house is sold, the lender gets to keep as much of the sale proceeds needed to repay the mortgage plus accrued interest and any charges. Anything left over goes into the estate of the lifetime mortgage customer.
Assuming you will carry on living at your mother’s house, even if only part-time, in theory you should be able to get a joint residential mortgage with your sister even though she won’t be living in the property. Your situation would be similar to family members who take out a joint mortgage – typically parents with their first-time-buyer offspring – but don’t intend to live in the mortgaged property.
As what you are proposing is quite unusual, it would be worth using a mortgage broker who can identify lenders prepared to be flexible (the Guardian has a mortgage advice service you could try). And I think that your mother should take legal advice on your proposal. If she were to sell her house to you and your sister, it would be like giving it away as she would lose the right to live there until her death (which she wouldn’t with a lifetime mortgage). Her home would also be at risk if you failed to pay your joint mortgage and the house had to be repossessed by your lender.
