What do I need to consider if my son pays off my mortgage?

17 May 2016

Q

I am 74 years old and have a retirement mortgage with Halifax. It is an old type of mortgage that has since been discontinued. I owe £29,650 and have been repaying on an interest-only basis. What I would like to know is can my son pay off the outstanding amount and then own my house? I would like to continue living here until I die, but then he can do what he wants with it. Other than the need to stay in his favour so he doesn’t evict me, are there any downsides to this?

From
BO/Lowestoft

A

The first thing to check is whether the mortgage carries any early repayment charges. It’s unlikely given the fact that you’ve had the mortgage for some time, but it’s worth confirming.

Your son can, of course, choose to pay off your mortgage. The issue that needs to be thought about is how you plan to structure that. Your son could give you the cash to repay the mortgage with no impact on the ownership of the property.

Alternatively, you might decide that you want him to take ownership of the property and transfer it into his name. That will require legal work and costs to complete the transfer.

 

There could be important considerations around inheritance tax and how the transfer is treated when it comes to means testing around care costs. [Moneywise says: “If your income and capital are above a certain amount, you will have to pay towards the costs of your care. The local authority could consider the gifting of your home as ‘deliberate deprivation of assets’, where you have intentionally decreased your overall assets, in order to reduce the amount you are charged towards your care and support.

“However, the local authority must show that you knew that you would need care and support and that you have reduced your assets in order to reduce the contribution you are asked to make towards the cost.”]

A solicitor should also be able to draw up a formal agreement about your right to live in the property for life.

An alternative option could be to register your son’s interest to the value of the mortgage that he has repaid for you – or to that percentage of the property value. That would leave the property in your name but would mean that it couldn’t be sold without your son getting his money back from the proceeds.

The right approach will really depend on the outcome that you are trying to achieve, and understanding any other ramifications is important for both of you.