Should my parents gift me their home to avoid Fair Deal costs?

[Des Pondent]

Regarding Fair Deal, don’t worry.

In any event, it’s unlikely to matter, since the maximum Fair Deal can take from the value of your home is 22.5pc, well within the limits of what’s left after an equity release mortgage.

I am not sure the Indo article is correct. I always thought, and I think posters here reported that the HSE would not give them the nursing home loan part of Fair Deal if Spry already had a charge on the property.

It is easy to see how, in some cases, there might not be enough in the pot to pay both, if one was to live a long time after getting a life loan and then spent their last years in a nursing home with a HSE loan.

 

[ClubMan]

For what it's worth...

Will equity release prevent you getting approved for Fair Deal?

Both lenders need to be sure that there is enough equity in your home available to them to make sure their debt is repaid

www.irishtimes.com

...
This is why it can be very difficult to get Fair Deal if you have an equity release mortgage on your home, especially a lifeloan-type product.

However, Spry does now offer a feature where you can pay 6.8 per cent interest on your loan instead of the standard 6.7 per cent, and ringfence 20 per cent of the value of the property from exposure to the lifeloan.

That gets you most of the way to the 22.5 per cent required under Fair Deal. However, you would still need to reassure the HSE and Revenue that you, or some guarantor, was good for the remaining 2.5 per cent of the property’s value – €10,725 in our example – before they would consider extending Fair Deal to you.

 

[Des Pondent]

Also worth noting that although the nursing home loan is interest free and capped at 22.5%, you could end up owing a higher percentage as what is owed will be adjusted annually for inflation.

 

[Annieindublin]

Simple enough to me… if you have assets you have more options.

 

[TomEdison]

Am I correct in thinking that, in the event, your mother did not take up that option?

Your are correct. And you're right — mortgaging the house in these circumstances is not a straightforward option and there are downsides to it.

But it's an option that should be kept open. Bad and all as it is, there are circumstances in which it may be the least worst option, and it may make the difference between being able to stay in your own home and being forced to move to residential care when you don't want to. That options is always worth keeping open.

 

[TomEdison]

Worth adding that, in cases like this, it can be the parents driving the proposal to transfer the house, not the children. Some people attach a huge importance to leaving the maximum possible legacy to their heirs/preserving the family home, and they may be underestimating, or in denial about, their own present or possibly future infirmity,and the need they will have for care of one kind or another.

 

[Persia]

In a scenario where your marriage breaks down in say year 4 of this arrangement, your spouse will likely look for half of all assets, potentially forcing a sale.

Your parents could in theory be looking for a rental property at a particularly vulnerable time in their lives both financially and health wise.

 

[ClubMan]

Bad and all as it is, there are circumstances in which it may be the least worst option

You seem to think that a remortgaging via a lifetime loan is inherently bad? Why? Surely it's a good option in certain circumstances? E.g.:

There is nothing at all wrong with lifetime mortgages. With an aging population and declining pensions, there is a huge societal need for these products.

 

[TomEdison]

You seem to think that a remortgaging via a lifetime loan is inherently bad?

Badly phrased on my part. It's not inherently bad; it just has a lot of potential downsides. It's an expensive way to borrow; there's a real risk of interest mounting up and of the total repayments consisting of much more interest, relative to principal, than in a conventional mortgage. And it can complicate access to the Fair Deal Scheme.

So, not something to be done lightly, but not inherently bad. In some cases it can be the best option open to someone, given their needs and circumstances (which is a reason for not precluding it by transferring the house to the next generation).

 

[ClubMan]

Thanks for the clarification.

 

[Freelance]

In a scenario where your marriage breaks down in say year 4 of this arrangement, your spouse will likely look for half of all assets, potentially forcing a sale.

Your parents could in theory be looking for a rental property at a particularly vulnerable time in their lives both financially and health wise.

And the same applies if the transferee were to be declared bankrupt, the asset would be in their name and very difficult to keep out of reach of their creditors. There could also be major complications relating to subsequent inheritance if the transferee died. These and the divorce issue are the strongest arguments to reject the proposition. The parents should retain ownership.