Equity release to finance In-laws house-build?

My in-laws are currently undertaking a direct-build project, hiring bricklayers, electicians, etc as they need them and paying them directly.

They need about €30k to complete the project and had initially intended to finance this from the sale of their current home (they had intended renting for a short period between the sale of the old house and completion of the new one). The collapse of the property market, however, has effectively ruled out this option.

In the circumstances, they have asked us take out a top-up mortgage in our names that would allow them complete the build quickly. They then intend to rent-out their existing home to finance repayment of the top-up until such time as they can sell it and clear the outstanding amount completely.

We're anxious to help them out of the bind they're currently in but are conscious that our mortgage provider may not share our sympathy.

Can anyone advise on whther a bank would be likely to grant us a top-up mortgage for this purpose? If not, could/should we conceal the true purpose of the loan and seek it "officially" for other purposes. I'd prefer to completely frank with the bank but am equally anxious to help out my-in-laws.

By the way, there would be no difficulties with affordability of the increased loan or with the value of the new mortage relative to the existing value of the house.

Any advice would be appreciated.

Sounds very risky. They could be waiting a long time for the market to pick up again, meantime you are left high and dry. Are you confident that if they do rent out their current house, the rent will cover any outstanding mortgage, plus repayments on your loan.

If their figure make sense why will a bank not loan them the money directly?

Have you considered what would happen if a) one of them lost their job, b) they cannot sell the old house c) the rent doesn't cover the top up.

In relation to getting a loan off the bank, if you tell them (the bank) what they want to hear then you are more likely to get a loan. I doubt they will loan to you based on the scenario you've outlined.

If you yourself can well afford the top up then you should not even consider it.

Borrowing...in Laws....houses.... it sounds like a reciepe for disaster I think.

Avoid this if you can. Can they borrow from anywhere else, their bank?

To answer the question ( and assuming Staples is a grown up and well aware of any potential difficulties), your bank may not even ask what the top-up is for. You could put in the generic- doing up the house in a way that makes no structural changes- type reason if asked. The bank don't care all that much in my experience. I've seen people get top-ups for all sorts of reasons ( race-horses, boats, debts, cars, extensions etc etc).

Thanks for the replies.

My in-laws are both retired so they're not in a position to get a bank loan. They have no mortgage on their existing house.

The likely rent for the property (even in a depressed market) would more than cover the increase in our mortgage and I have no doubt that the appropriate amount would be provided to us each month in advance. They have no notions about the market price of their existing house returning to peak levels but, at the same time they don't want to be forced to sell in a panic at a time when the market is so depressed.

In the circumstances, I think the best option might be to tell the bank a white lie or two and hope they don't ask too many awkward questions. Not my preferred way of conducting business, but that's where we are.

Thanks again for the replies.

It occurs that the in-laws might be able to get a loan in their own right using their existing house (which is mortgage-free) as collateral.

Is this an option?

I'm aware that a few years ago, some banks used to offer "retirement mortgages" through which they advanced a lump sum to be paid back, with interest, when the house was eventually sold.

Any advice appreciated.

This may be possible, Seniors Money provide lifetime loans.


www.moneybackmortgages.ie

I don't know anything about the particular loans mentioned but elderly people need to be sure they understand what they are signing up to. Be careful.

The likely rent for the property (even in a depressed market) would more than cover the increase in our mortgage and I have no doubt that the appropriate amount would be provided to us each month in advance.

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But you will only get paid AFTER they pay bank whatever loans/mortgage they took out to build the property in the first place. If they cant cover their repayments, you likely wont get paid.

Is there some reason the banks are unwilling to offer them such a small amount considering that they own a mortgage free property? Is there something we're not being told? Does the fact that the banks wont lend to them concern you?

I personally would run a mile from something like this if it were me and even if the in-laws were well able to pay back. This is the sort of thing that often leads to families falling out.

csirl said:

But you will only get paid AFTER they pay bank whatever loans/mortgage they took out to build the property in the first place. If they cant cover their repayments, you likely wont get paid..

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For clarity, they are completely debt-free and have no existing loans, therefore, that need to be serviced. The intention is that they would cover the increase to our mortgage with the revenue raised from the rental of their existing house (when they move into the new one).

csirl said:

Is there some reason the banks are unwilling to offer them such a small amount considering that they own a mortgage free property? Is there something we're not being told? Does the fact that the banks wont lend to them concern you?.

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Your comment raises the question of whether the banks WOULD actually advance them a loan. We've all been operating on the basis that because of their age (they're both in their 70s), the banks wouldn't touch them but perhaps we've been premature on this one. As I mentioned, they could use their existing house as collateral.

Are the banks likely to lend to them in these circumstances?

csirl said:

I personally would run a mile from something like this if it were me and even if the in-laws were well able to pay back. This is the sort of thing that often leads to families falling out.

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I appreciate your concern and share it to some extent. The situation is not ideal and we'd prefer not to be in this position. However, they've helped us out in the past and we're willing to help as we can.