A reader writes:
My husband and I own a four-bedroom bungalow with a large garden. I am 59 and my husband is 61, and we have been considering equity release to supplement our income. We don’t want to move, so are considering asking our son and his wife to live with us. They would need to purchase a 30% share of the property to release the capital we require.
Would they be able to obtain a mortgage if they did not have access to the full equity? Could they avoid finding a lump sum by simply paying us a monthly amount? This would give us income without them having to borrow from a bank.
What would happen if we needed to move? They could not afford to buy us out and we could not afford care home fees without selling the house.
What should you consider before signing property over to your children?
Annie Shaw replies:
There are two ways to release the money you need: you could take out a conventional bank mortgage or you could come to a private arrangement.
If you opted for a bank mortgage, you would transfer part-ownership of the house to your son and daughter-in-law and take out a joint loan with them. You would invest the money released to generate income, and your son and his wife would make the loan repayments.
The downside of this arrangement is that, since you would be joint owners and hence joint mortgagers – you can’t mortgage part of a property, although you can specify who owns the unmortgaged equity – the loan would have to be in joint names and you would be equally legally responsible for repayments.
Your home could be at risk if your son failed to keep up the repayments and you could not step in to help.
Additionally, many mortgage products might not be available because of your husband’s age. A good broker would, however, be able to advise on suitable loans.
Alternatively, you could grant your son and daughter-in-law a private mortgage. You would transfer a share of the property to them in return for an agreed sum, which they would then repay over a set period, providing you with an income.
To safeguard your interests and to avoid tax traps, you would need to take professional advice on how to structure the arrangement.
You would also need to specify in a legal document what your rights would be in various scenarios, such as death, divorce, failure to make repayments or simply a wish to move house.
If you or your husband needed to go into care, the house would not be considered in a fees assessment while the other spouse was still resident. If one of you died and the other needed care, then the value of the part of the home that you had not transferred to your son could possibly be taken into account. This is a tricky area so you should take legal advice.
The local authority would not force a sale, but unless it ruled at the time you entered care that the value of your share of the house was nil – unsaleable since your son owned part of it – it could potentially put a charge on the property and recoup care-fees contributions from the proceeds of any future sale.
Read more about the pros and cons of living with your children.
* Read Annie Shaw's money articles every month in Saga Magazine.