Is there a mortgage that my friends can use to move without needing their daughter’s help? | Mortgages

P My friends retired to the coast 20 years ago. They are now in their late 80s and want to return to live near their daughter and two sons to benefit from their support. The problem is that their current home on the coast is likely to sell for £400,000, but bungalows near their family are around £500,000. Their daughter debates how to help. Could she take out a mortgage (the home she owns is worth around £440,000 outright) on her home or take out an unsecured loan to cover the shortfall for her parents? Or can my friends get some sort of loan, or equity release or interest only product that they can manage on a small pension? How can my friends make sure their daughter is repaid in the event of their death or guardianship fees coming due?

A Judging by the number of emails I’ve had over the years from one sibling (out of several) whose parents have helped financially or vice versa, unless all arrangements are made out in the open and with all stakeholders involved, things can easily go wrong, yes I don’t say bitter and bitter. And any arrangement where the lender – in this case, your friends’ daughter – needs to be paid back (even if eventually) can cause additional and unnecessary complications.

So, in answer to your question about whether there is a product that your friends could use without having to ask their kids for help, yes, there is. According to Andy Vickery, a qualified equity release and mortgage adviser at Money Release who specializes in the finances of the over 55s, they could take out an equity release mortgage. He says: “Cash from your current property, along with the equity you’re freeing up from the new home [using the equity release mortgage]will give you enough to buy your new home.”

So using the Money Release calculator “release equity to buy property” and assuming your friends would have £365,000 to put down as a deposit and the younger one is 88 (after deductions – from the sale proceeds of £400,000 – the estate agents and legal fees as well as the £25,000 they will have to pay in land tax on a new property costing £500,000), they will need an equity release mortgage of £135,000 to complete the purchase.

The advantage of an equity release mortgage over a standard home mortgage, such as the type a daughter might take out, is that there are no monthly repayments to be made. This does not mean that interest is not charged – it is – but the interest due is added to the amount originally borrowed, so that the amount owed increases each year. If your friends’ pensions allow them to pay some interest – either regularly or as the mood takes them – the total amount of debt grows more slowly.

Whatever your friends decide, Vickery says they should only go for an equity release scheme approved by the Equity Release Council.

Do you want professional help in finding a new mortgage? Use our online tool to search thousands of offers from more than 80 lenders with the Guardian mortgage service, powered by L&C.

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