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The Mortgage Gift Your Kids Won't Thank You For

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Guest wrongmove

Sorry if this has already been posted, but I couldn't find it

The mortgage gift your kids won't thank you for

" Kent Reliance Building Society may be tiny, but its big new idea is generating huge interest from borrowers and mortgage advisers. The UK's first inter-generational mortgage is a home loan that can be passed on from parents to children.

The initiative is aimed at both younger borrowers keen to get a foot on the increasingly unaffordable housing ladder, and older borrowers who want to maximise their disposable income. And there's even the prospect of a smaller inheritance tax bill for some families.

There are two parts to the deal. The first is that Kent Reliance's mortgage is an interest-only loan. Borrowers make no capital repayments at all - each month they just service the mortgage interest - cutting the cost of repayments.

Second, while most mortgages are set up on a 25 or 30-year term - by the end of which all the capital borrowed must be repaid - Kent Reliance will allow borrowers to take out loans over a much longer period. It has no set maximum, so the term could be 40 or even 60 years and if borrowers die before the loan is repaid, the whole deal can be passed on to their children......

...."This is about giving people options - not telling them how to live their lives, not telling them that they can only have a 25-year mortgage which has to be paid off at the end of the term," says Mike Lazenby, the chief executive of Kent Reliance.

"It's worked in Switzerland and Japan, but in this country we do tend to think in straight lines - I think a bit of innovation should be encouraged.""......

:lol::lol::lol:

It gets better !!

".....The inheritance tax benefit is also attractive, the society believes. If you're left a house worth more than the annual threshold - £285,000 this year - there is 40 per cent tax to pay on its value. But the outstanding mortgage on the property comes off its value pound for pound, reducing or eliminating the tax bill....."

:P

How can you pay tax on something that is still owned by the bank ? "Reducing or eliminating the tax bill" ! Reducing or eliminating the inheritance, more like - who wants to inherit a debt, even if it is "tax-free" ?

Edited by wrongmove

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Guest wrongmove

Another article on this in today's Independent: A maverick mortgage from Kent

" There's a new kid on the block. Kent Reliance building society has launched a maverick mortgage deal that has divided opinion among brokers: is it a genuine attempt to help first-time buyers on to the property ladder, or an impractical oddity?

In a nutshell, borrowers on a mainstream interest-only loan are usually offered a term of 25 years -and advised to switch to a repayment deal within two to five years.

But the new Kent Reliance mortgage allows the repayment of capital to be deferred indefinitely; borrowers still paying interest when they die can pass the debt, and the home, on to their children....

...Melanie Bien of broker Savills Private Finance is downbeat: "The reality is, you will pay considerably more interest over the term of the loan than you would with a shorter or repayment deal - while your family will never own the property outright."

For example, if you had a £200,000 mortgage on a 25-year repayment basis, the capital and interest repayments would cost around £350,754, and at the end of the 25 years you would be debt free.

If you borrowed this amount over 40 years on an interest-only basis, you would make £400,000 in interest payments and still owe the original £200,000 to your lender...."

I can remember low-start, IO etc from the last crash, but I think "inter-generational" mortgages are new to the UK.

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I have a question regarding this subject which I am hoping someone may be able to answer. Sorry if some details are a bit vague...

My Dad (70) who in 2006 had to move into another property as the result of a divorce, recently advised me that he has an IO mortgage on the flat that he had 'purchased'. I estimate the property would have cost him £100-130k.

I am not sure of the value of the IO mortgage he has taken out but it is likely to be a significant LTV, so what happens should I as the primary will beneficiary, not want to live in the property and wish to sell? Presumably, post-sale I would be liable for the whole original loan, interest due and who knows what other penalties. It sounds to me like a whole heap of debt and that's assuming there isn't a downturn in the property market! Any current Inheritance Tax 'benefits' are also seemingly irrelevant in this case.

Like many hopeful FTB's, I've not yet got a place of my own and being in a reasonably 'controlled' financial situation myself, I certainly don't want to inherit any long term debt for somewhere I probably won't want to live.

I guess I will have to talk to my solicitor and see whether there's anything I can do to 'protect' myself but I would be most grateful for any further information or advice on what sounds like a nightmare waiting to happen...

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AFAIK, under the law as it currently stands, no-one can inherit liabilities unless they have specifically agreed to do so. If the assets in a deceased person's estate cannot cover its liabilities, the debts die with the debtor.

I don't know how that works in the case of inheriting a property with outstanding mortgage debts on it, though.

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Same as always. Unless you are named as a party to the mortgage you don't have any liability to pay the debt.

On selling the property any surplus of value over the outstanding debt would be your father's/ his estate's. Any shortfall would also be your father's responsibility but never passes to the estate.

From an underwriting point of view, very few lenders would provide an IO mortgage to a retired person with out least some form of deposit to cover their risk so your father should have at least some equity in the property.

If your father wants to bequeath the property to you and you wanted to live there, then you would have to pay off your father's mortgage either with your own cash or a new mortgage in your name.

Hope this helps.

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I don't know how that works in the case of inheriting a property with outstanding mortgage debts on it, though.

It's an interesting area this one. My sister & I inherited my mums' property in 2005 and although mercifully there was no outstanding mortgage, I as executor received a demand in 2006 from the Legal Services Commission for payment of a debt dating back to the 1980's. The loan (for legal fees) had been secured against the property and was still recoverable from the sale value. Fortunatley we had not yet completed the sale so were able to deduct it from the proceeds. I'm STILL awaiting a repayment of IHT from the IR as the loan repayment was a liability not declared in the initial probate paperwork...

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Same as always. Unless you are named as a party to the mortgage you don't have any liability to pay the debt.

On selling the property any surplus of value over the outstanding debt would be your father's/ his estate's. Any shortfall would also be your father's responsibility but never passes to the estate.

From an underwriting point of view, very few lenders would provide an IO mortgage to a retired person with out least some form of deposit to cover their risk so your father should have at least some equity in the property.

If your father wants to bequeath the property to you and you wanted to live there, then you would have to pay off your father's mortgage either with your own cash or a new mortgage in your name.

Hope this helps.

Thanks, this does help! Judging by your final comment, does this mean that anyone inheriting a property with an IO mortgage is ONLY liable for continued repayments should they actually wish to live in it? In this case can the new mortgage become a repayment or does it remain the original IO but in the new owners name?

It's interesting but my Dad also recently talked about trying to put the property in my name but his solicitor advised it couldn't be done. Now I think I know why...

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Guest Charlie The Tramp

I`m sure the Kent Reliance will have it all tied up very nicely.

Person dies, property value £400k, IO mortgage £200k, Net Estate £200k, beneficiary accepts offer of Kent Reliance to take out new IO mortgage of £200k, or the beneficiary refuses the offer, sells property, repays Kent Reliance £200k and puts balance of £200k in a BTL portfolio, problem solved. ;)

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Thanks, this does help! Judging by your final comment, does this mean that anyone inheriting a property with an IO mortgage is ONLY liable for continued repayments should they actually wish to live in it? In this case can the new mortgage become a repayment or does it remain the original IO but in the new owners name?

You don't inherit the mortgage at all. You inherit the proceeds of selling the property after clearing the mortgage or the estate "sells" the property to yourself for its mortgage value thus clearing the pre-existing mortgage, you then arrange how to cover the shortfall yourself by for example another mortgage.

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Basically, you can only be liable for continuing to pay the mortgage (whether IO or repayment) if you are party to the mortgage contract. You don't have any responsibility to pay the mortgage even if your father leaves you the property (in effect he would only be leaving you the value of the property less the outstanding mortgage balance). If the value of the property didn't cover the mortgage, that is the lenders problem, not yours (although they could take any additional money owed out of your father's other estate - say if he had money in the bank etc).

If your father left you the house I think that you could only continue to the live in the property if the lender agreed to transfer the existing mortgage to you, or more likely, you redeemed the mortgage by taking out your own.

The terms of any new mortgage (e.g. IO or repayment) would be up to you and any lender you approached.

Your father couldn't transfer the property to you as long as the lender has a charge (the mortgage) against the property. To do this, you would need to "buy him out".

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It's an interesting area this one. My sister & I inherited my mums' property in 2005 and although mercifully there was no outstanding mortgage, I as executor received a demand in 2006 from the Legal Services Commission for payment of a debt dating back to the 1980's. The loan (for legal fees) had been secured against the property and was still recoverable from the sale value. Fortunatley we had not yet completed the sale so were able to deduct it from the proceeds. I'm STILL awaiting a repayment of IHT from the IR as the loan repayment was a liability not declared in the initial probate paperwork...

Digging the sig, Tucksy. :D

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Second, while most mortgages are set up on a 25 or 30-year term - by the end of which all the capital borrowed must be repaid - Kent Reliance will allow borrowers to take out loans over a much longer period. It has no set maximum, so the term could be 40 or even 60 years and if borrowers die before the loan is repaid, the whole deal can be passed on to their children......

For example, if you had a £200,000 mortgage on a 25-year repayment basis, the capital and interest repayments would cost around £350,754, and at the end of the 25 years you would be debt free.

If you borrowed this amount over 40 years on an interest-only basis, you would make £400,000 in interest payments and still owe the original £200,000 to your lender...."

This is already available in a much more flexible, far less risk product called RENTING. I realise it's a little known concept in Britain, but it's worth checking out before taking on a never-ending IO mortgage :P

Edited by Fergie

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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