Finance elderly home-owner's purchase of flat ahead of house sale

Wonder if this might help

Which Magazine Feb 2012

Allan

You have my sympathy as I know only too well how "she doesn't want to move until ......." can be a source of difficulties and uncertainties. In particular, do you need to assess all options against the possibility your mother doesn't move for some years?

Beyond that FWLIW I think you are right to question ERS. Both Key Retirement Solutions and AGE UK seem to offer a narrow range of services which may make ERS their only option. That leaves only the financial adviser to look more widely. Might be worth checking s/he is at least FSA regulated. But other options - eg a plain vanilla mortgage or bridging loan - require your mother to be able to make payments. Lack of income to do so if she delays her move[1] might make advisers lean towards some form of ERS.

In any event I'd want advisers to provide figures for how much she would be left with after an early exit from the ERS - on the lines of the examples in the Which? piece from Allan.

[1] The only thing I can see which might cope really well with a long delay is to acquire the flat as a buy-to-let business; but that's no doubt "a cunning plan" which won't win me a turnip ;(

My elderly mother is thinking it's time to up sticks from her rambling old house in the middle of nowhere and move into a sheltered housing flat near my sister. A suitable and desirable flat is likely to be available in a few months but she doesn't want to move until the autumn at the earliest, so she needs to raise some money to buy the new place when it comes up, before she sells her house (which is worth comfortably more than the flat).

My sister has been talking to a financial advisor, AgeUK and a company called Key Retirement Solutions and seems to be being steered towards Equity Release schemes.

----------------------------------------------------------------------------------------------- Do not touch ER for this with a barge pole, it is entirely the wrong solution

And as they are so stupid and/or biased by the commission on offer, sack the advisor(s), they are not working in her interests.

tim

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So what *would* you suggest?

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So what *would* you suggest?

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I would suggest selling the house first and then picking the most appropriate property to buy when that has been achieved.

Retirement props *don't* sell like "hot cake", most of them are sticky and stay available for ages and ages and ages, so there's always a reasonable choice available.

tim

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And where do you suggest my mother lives in the period between selling her house and finding a new place to live?!

The place we're looking at is 5 minutes walk from my sister's place and on the ground floor. The last one that became available there was over a year ago.

What she needs is a somewhat extended bridging loan, with a charge against her existing house as surety. Once that's sold, the loan will automatically be paid off. I'm not sure what kind of institution would be best to approach for such a facility. Start with a few banks. You don't really want a mortgage - even on an interest-only basis - 'cos that would probably have penalties if you paid it off after only a few months.

In article , Roger Mills writes

It is a very expensive way to borrow money though, I'm afraid, particularly if you're relying on the eventual sale of a house to terminate it. Where a sale can be cancelled almost on a whim, as in the English system, it's something I'd suggest avoiding if at all possible. An unscrupulous buyer could hold you to ransom on a sale if they found out you were on expensive finance.

In the same boat I'd be advising the parent to sell first and wait for a suitable retirement property to become available, no matter how long it takes. In the interim, I'd suggest she rents a little Miss Marple cottage, the cost of that, even if she needs a live in helper would probably be less than the potential costs of bridging finance. The other alternative could be to bugger off to Cyprus for 6 mths, she make like either so much that she knocks the retirement pad on the head altogether :-).

You may get the, "I don't want to move twice" argument but a reasonable explanation of the risks and costs of temporary finance could well take care of that.

When I was in a similar situation about fifteen years ago, bridging loans were prohibitively expensive.

I ended up taking out a mortgage on my own house, using the money to fund the overlap when my mother owned two houses. I was totally up front with the bank about what I was doing and I did check in advance that there were no early termination penalties. It all worked very smoothly and didn't cost very much at all. It was about five months IIRC.

Indeed. It's why I was inclined to be slow to rubbish equity release. I don't see how it can be ruled out until all the sums have been done - including the sums of what is payable if house don't get sold as soon as was hoped for initially.

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Find a temporary rental That's flipping obvious, I would have thought

The place we're looking at is 5 minutes walk from my sister's place and

It could easily still be available by the time the house is sold

Reduce the price to sell it if necessary, it will cost less than you will be ripped off getting an inappropriate loan with crippling redemption penalties

tim

When I was in a similar situation about fifteen years ago, bridging loans were prohibitively expensive.

I ended up taking out a mortgage on my own house, using the money to fund the overlap when my mother owned two houses. I was totally up front with the bank about what I was doing and I did check in advance that there were no early termination penalties. It all worked very smoothly and didn't cost very much at all. It was about five months IIRC.

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In the current market the chances of someone getting a normal mortgage, whilst on a minimum income, is pretty close to zero

tim

I imagine so. I obviously wasn't paying enough attention because I didn't notice the OP saying he was on minimum income.

I imagine so. I obviously wasn't paying enough attention because I didn't notice the OP saying he was on minimum income.

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He didn't, but it's a question about an OAP moving into a "restricted occupancy" home who was worried about the effect on their benefits of owing (what in effect would be) a second home.

tim

Actually it a question about "she needs to raise some money to buy the new place when it comes up, before she sells her house". Then "*the*

*other *factor* [my emphasis] was how any of this would affect her benefits". I don't think anyone other than you was considering her getting a mortgage.

The reason we did not buy a retirement property (apart from deciding we were not ready for it) was that usually the managing agents want first chance to sell it and even if they don't still want a percentage of the sale price. The worst one we came across wanted 1.5% for every year you had owned the property. The non retirement flat we did buy had been empty for six years. A couples Kids had persuaded them to trade down. Before moving in the husband died and the widow then did not want to live there and went into a retirement home and for some reason would not sell it. Derek.

She has a property in mind but with new build retirement properties the builders must have many people in her position and offer means of covering such situations. Personally I would prefer to take the lump sum from my property, enjoy it and rent for my remaining years. The renting sums always look quite attractive even if it did mean losing some benefits. The danger for later.

Derek.

The reason we did not buy a retirement property (apart from deciding we were not ready for it) was that usually the managing agents want first chance to sell it and even if they don't still want a percentage of the sale price. The worst one we came across wanted 1.5% for every year you had owned the property.

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There are one or two contracts around where the percentage of sale price is instead of the annual maintenance charge. For most properties, this seems like a reasonable deal to me.

For the others, the OFT have have told the management companies that they consider such charges to be illegal and want them withdrawn. You won't find them in any new retirement property contracts.

There's no problem with them having first chance to sell as long as the (sale) contract terms are otherwise reasonable. Second hand retirement props are hard to sell, there is a very restricted set of purchasers ready willing and able, so such a clause is unlikely to make things worse.

Just remember - when you (or more likely your relatives) want to sell, you will almost certainly end up with a buyer who plays hard-ball with the price. Don't be the weak numpty who rolls over and pays "asking" when buying.

It's a very very lucky seller indeed who gets a good price for a 2nd hand retirement prop.

And the above still applies when times are good. It isn't just the slowness of the market that's making it this way now.

tim

It's certainly in the sales brochure for a retirement development - still being built - that my mother looked at recently. Fortunately, she wasn't serious.