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mike wood

Funding ideas for the parents!

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Hey all,

Having experienced so much great advice here I wondered if people may have some advice which is actually for my parents. They are downsizing, they have just had an offer accepted on a bungalow (£370K) but have yet to put their current house on the market. They basically have 3 options as far as I can see for funding this purchase, but I wanted to see what those of you who know far more than me might think of doing.

First, the current house they have has no mortgage and would likely sell between 650-700K. They still have an income of over £70K per year and a number of savings/investments mainly as stocks and share ISAs. The 3 options I thought would be:

1. Get a bridging loan of some form for the purchase of the house while they move out of the current home and sell. Questions here, what % interest would be on a loan of this type for 18-24months?

2. Take out money from savings and investments. Question here, difficult to know the impact of taking this amount of cash out Vs interest made in stocks and shares in the current market and going forward

3. See if a mortgage is available for a short term (circa 10 years). Questions here, they are mid-60's so not sure if lenders would lend even with substantial capital and a home to sell.

Be great to hear your thoughts all :) 

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I think a bridging loan could be expensive and you have no idea how long it might take to sell the house. I would recommend your option 2 (as long as investments are in ISA's and they won't incur CGT). The stock market is high at the moment & the summer is usually a quiet time, so cash in now, sell the house & reinvest when the sale completes. It may take a few years to get it all back in ISAs but at £40k between them each year it is doable. It might also be a good time to consider giving some capital away to avoid IHT in the future and having a good look at how the investments are set up for the next 20 yrs.

Good luck :) 

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I think i would try option 3 first.  I don't think their ages will be an issue yet (https://www.money.co.uk/mortgages/mortgages-for-over-65s.htm) and I think the LTV is fine.  The issue may be their income (5.2=370/70), I think the standard max is usually around 4, but i think there are lenders who will go up further given that their LTV is relatively low (~52-57% =700 or 650 excluding purchase and bungalow renovation/ redecoration costs /370 ), so the key would be to find and speak with a good mortgage broker. Just try to get a very vanilla (no initial rate period?) interest only product with a low product fee and low or no early repayment charge.  Even if you are unable to obtain the full amount needed for the bungalow (including all purchase costs), I would max out the mortgage before using the savings. It would take them close to 10 years to put that capital back into their ISAs, if you bought the bungalow with the money from their ISAs.  

Additionally, are they close to retirement? How big are their pensions? Could they potentially part retire / take early retirement and use their tax free lump sums to fund the purchase?  For this, i think you need to speak with an IFA.     

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