Can my parents transfer their property to me or will the £90,000 mortgage mean they have

My parents’ goal is to either sell the house to pay off the remaining mortgage balance of £90,000 or, if it is feasible, transfer the property into my name so I could continue making mortgage payments. 

However, there are only three years left to pay it off, which makes it impossible. 

We are running out of time – what can we do in this scenario? 

Mortgage help: Our weekly Navigate the Mortgage Maze column sees broker David Hollingworth answering your questions

David Hollingworth replies: With a few years to run you’re right to think now about what the alternative options might be.

It sounds like they have an interest only mortgage, where the monthly payments cover the interest but don’t make any inroads into the mortgage balance. As a result, the borrower will need to have an alternative repayment strategy.

That would traditionally be an investment vehicle that would hopefully grow over time and ultimately see the pot grow enough to pay off the mortgage balance at the end of the term, or before. 

The risk is that the repayment vehicle fails to grow as hoped, leaving a shortfall.

Some borrowers have used interest only to keep monthly payments down, with no formal repayment method in place. 

Their expectation was either to later move to a repayment mortgage or pay off the mortgage through the sale of the property.

Time can fly and plans can change, which can see the end of the term approaching with little desire to sell up.

There are some potential options to consider, although some of these may not be viable depending on personal circumstances, so tailored advice will be crucial.

Downsizing

Downsizing should certainly be one of the options that is given careful consideration. If there could be a chance to sell, pay off the mortgage and leave enough proceeds to buy a smaller property it could clearly be the right choice.

It may not be their preference to move but it really should be part of the decision-making process and could leave your parents with the means to buy a home without the burden of an ongoing mortgage.

Switching to repayment

Switching the existing mortgage balance to repayment over the remaining term isn’t likely to be an option, as it would push monthly payments sky high with just three years to go.

The longer a switch to repayment is left, the harder it is to do without having to extend the mortgage term.

A switch to repayment will be subject to an affordability assessment by the lender, so your parents will need to show enough income.

Extending the term

If the term can be extended it would reduce the monthly cost of switching to a repayment mortgage. 

This will cost more in interest, as the debt will continue for longer but could allow the mortgage to be restructured and be more affordable.

However, many borrowers can find that their age will affect the options. 

Lenders will often have a maximum age at the end of the mortgage term, placing a cap on how much further the mortgage could be extended.

Some are more flexible than others and can offer mortgages that will last into later life, rather than limiting the term to age 75. 

Extending the term will again require an affordability assessment and will need evidence of that based on the ongoing income and commitments.

Extending the term on an interest only mortgage could be possible to give more time to develop an alternative strategy. 

Lenders offer interest only mortgages, although there are often more stringent requirements about the proposed repayment vehicle.

For example, sale of the property may be acceptable but often only where there’s a substantial amount of spare equity, to make downsizing a realistic possibility.

Downsizing: Hollingworth suggests they consider selling and paying off the mortgage – if this would leave enough proceeds to buy a smaller property it could be the right choice 

Retirement Interest Only

This type of deal would allow the mortgage to remain on an interest only basis without specifying a term by which it must be repaid. 

Instead, the mortgage is repaid when the property is sold, on death or a move into long term care. This avoids kicking the can down the road and facing the same issue of the term reducing.

As there is still a monthly payment to be met the lender will need to assess that your parents’ income will be able to cover the mortgage.

Property transfer

You mention transferring the property into your name to help with affordability, which would effectively see you purchase some, or all, of the property and essentially buy out the mortgage.

Lenders can consider purchases at a concessionary price between family members but will want to understand the ongoing occupancy, as well as establishing the ongoing affordability. There will be costs and legal advice will also be essential.

Existing lender

I hope that these options give some food for thought but it also makes sense to talk to the current lender. 

They may be able to consider things like extending the term but if solutions are limited, they should work to build a plan rather than run into the deadline without a way to pay.