Mortgage with right of residence on property

[FledNanders]

Any mortgage experts might hopefully be able to help with this query.



My father is planning to transfer ownership of his house to my brother and me, while retaining a right to residency for himself for the remainder of his life.

My brother currently lives in the house, and my father lives in a granny/grandad flat attached to the house.



It is planned that once the transfer is done, my brother will take out a mortgage to buy out my portion of the house so he will then have 100% ownership, and my father retains his right to residency.



My question is, are banks usually ok with lending a mortgage on a house where there is a right to residence attached to the house like this scenario?

 

[Dave Vanian]

My question is, are banks usually ok with lending a mortgage on a house where there is a right to residence attached to the house like this scenario?

No. The right of residence would conflict with their ability to repossess and sell the property in the event of a default on the mortgage. They won't do it.

Your father will have to trust your brother to allow him to stay in the house for life and to keep up repayments on the mortgage. It can't be a legal agreement.

 

[NoRegretsCoyote]

It is planned that once the transfer is done, my brother will take out a mortgage to buy out my portion of the house so he will then have 100% ownership, and my father retains his right to residency.

Say the house is worth €300k. Your father could transfer ownership to you and your brother retaining a right of residence for himself. The value of your "share" is worth less than half the €300k as your father has a right of residence, so let's say €100k. You give your brother a "mortgage" of €100k and he pays you back over an agreed timeframe with an agreed rate.

It depends on your cashflow needs and demands a lot of trust. There is tax to think about and you'd all need separate legal advice. But it gets you round the bank issue.

 

[Monbretia]

Ask a broker, not unheard of years ago anyway, father needs to waive right of residence in favour of bank, doesn't affect him other than if house being repossessed then he's out on his ear together with son.

 

[Jim Stafford]

Your father will have to trust your brother to allow him to stay in the house for life and to keep up repayments on the mortgage. It can't be a legal agreement.

Rights of Residence are easily, and frequently, documented. Such rights should be recorded on the property folio. As a matter of fact, people should be using them more for CAT planning purposes.

Click on link below to calculate the valuation of your gift after taking into account the valuation of your father's Right of residence.

Factors used for calculating value of limited interest

this page provides tables of factors (for age, gender and the number of years for which a benefit is taken) to calculate taxable value of a limited interest.

www.revenue.ie

The problem with a right of residence is that it makes it very difficult to get a mortgage on the property.

In any event, why would you accept a relatively small amount now, when you can get a greater amount in the future? View it as a long a term pension.


Jim Stafford

 

[RetirementPlan]

Ask a broker, not unheard of years ago anyway, father needs to waive right of residence in favour of bank, doesn't affect him other than if house being repossessed then he's out on his ear together with son.

This could create a mechanism for the children to get the father kicked out of the house, and let them get their hands on the proceeds after repossession, if they were not good children.

 

[Monbretia]

This could create a mechanism for the children to get the father kicked out of the house, and let them get their hands on the proceeds after repossession, if they were not good children.

They wouldn't want to be in a hurry! I'd say it would take a fair old while for a bank to get a repossession order with an elderly parent in the house, it takes ages at the best of times but I'd say a judge would be slow! Which of course is why banks won't necessarily be too keen to do this sort of loan.

There has to be some element of trust sometimes, hopefully the father knows at this stage what sort of children he has!

 

[RetirementPlan]

They wouldn't want to be in a hurry! I'd say it would take a fair old while for a bank to get a repossession order with an elderly parent in the house, it takes ages at the best of times but I'd say a judge would be slow! Which of course is why banks won't necessarily be too keen to do this sort of loan.

There has to be some element of trust sometimes, hopefully the father knows at this stage what sort of children he has!

You're right about the duration, but maybe the kids should be trusting the parent?