To Buy or Not to Buy, that is the question!

jogo_3

My husband died last year and I have 2 children aged 14 and 10. I have managed to pay off the mortgage with a life policy and will have about £95,000 left. My brother wants to sell a little house he owns in the country and is offering it to me for £47,500 which still gives him a profit!! At the moment there is a tenant in situ paying £55/wk + council tax and he is quite settled and is a good tenant. The house is in good nick and because it is near my parental home it is very tempting. My question is, if I buy this house should I pay it outright or would I be better to get a mortgage. Would there be any benefit to putting the new house in my childrens name and can I still claim the rental if that is the case? I need to supplement my own wage by approximately £350/month. If the rental brings in £220/month can I make up the short fall from the remaining say, £45,000? Would I be better to forget about the house and invest the capital elsewhere? Hope I've not asked too many questions but as you can see I'm not sure the best way forward for me. I've already got a cash ISA for last year and this year.

Indispensable_Hobbes

I would have thought buying outright would be better than getting a mortgage since your going to be getting charged interest on a mortgage

Rickycowslip

I suppose the biggest question here, other than the complexities of the tax arrangements if you put the assets in other peoples names then claim the rental income, is your view on whether you are buying the property at below the market value. If it has a market value of say £80k then easy decision, and you have a very nice brother. However if its worth around £50k then you need to take a view on where you think property prices are going. If you agree with the popular view that they are going to stagnate for the next few years then maybe a nice sensible deposit account is the easy answer...

property has been good for the past few years but remember the old adage buy low sell high, sadly most people do it the other way round

mbamick

Firstly, jogo, sorry to hear about your loss. It must be very difficult for you and the children, and I wish you well in the future. I'm certainly not an expert in this area, but am happy to offer a couple of points which I think are worth taking on board.

The house purchase (£47.5k) will generate £220 per month BEFORE tax. I've assumed that the attributing the income to the children isn't possible, and that you are liable for income tax at 22%. So you'd see £172 after tax. You'd therefore need to find an account paying 5.8% gross, for you to obtain after tax income of £179 from the remaining £47.5k. There aren't too many of those accounts around at the moment, so you may need to consider some sort of drawdown from the savings account, or reduce spending / increase income from elsewhere [i.e. puting the rent up slightly].

You'd need a gross interest rate of 5.67%, to get the £350k per month from a savings account with £95 in it.

I'd be a little weary of buying to let, insofar that you need to think about the potential costs of maintaining the property. The rent seems quite low, so there isn't much scope for covering the costs of repairs etc. Similarly, you should consider your ability to bail out at short-notice - in case you need the money for anything. How quickly would the cottage sell if you needed to sell it quickly? How would you manage if the tenant moved out, and you were faced with council tax & water rates bills to pay, but with no rental income coming in? What could be done if the tenant decides to take up squatters right, stay in the property and not pay rent?

I obviously don't want to start scare-mongering, but you need to think long and hard about what to do with the nest-egg that you have. I'd strongly suggest that you speak to [AT LEAST] two INDEPENDANT financial advisors, to see what they would suggest. After all, the critical issue is to secure the income that you and the children need over the next 5-10 years.

Good luck in the future.

Robert_Sterling_3

I do not think that you can "Put the house in your children's names".
I do not think persons under the age of 18 can own a house.
You may be able to get round this problem by putting the house into a trust.
A trust may or may not bring about your desired objective.
You may need legal advice on this matter.


This is not legal or financial advice.