Considering buying house for son to live in - pitfalls?

zzzLazyDaisy

Firstly, please don't tell me that this is the wrong time to buy, that house prices have further to fall etc etc. I am looking for practical advice on this particular situation.

My son is disabled, he is renting privately in a not very nice part of town. His LHA doesn;t cover the rent, so he is having to make it up from his IS/DLA leaving him struggling financially. It is also difficult to heat and this is going to affect his health as winter approaches. The local authority/housing associations can't help.

I have seen a nice one bed ground floor flat on a new development, about 2 years old. It is in a better part of town, though truthfully not the best location. The flat has been for sale since January. The price has been dropped four times and I believe the seller would come down further. I would be a cash buyer, and the LHA would cover the mortgage. Our LA will pay LHA where the landlord is a relative, provided certain requirements are met, which they would be.

I have the cash in savings, but the interest supplements my income, so although I would pay cash, in the longer term I would be looking to take an interest only mortgage against the property and release some of the capital.

If all goes well, my son would stay in the flat and re-sale wouldn't be a factor, but I understand that in the unlikely event of house prices rising there may eventually be a CGT issue, but I am not concerned about that.

It just seems the best thing to do in the circumstances.

Can anyone spot any pitfalls, or anything that I might have overlooked?

Many thanks

Daisy

Microstar_2

Normally I would say 'don't buy now', but in your particular circumstances it would seem to be a sensible purchase, especially since you seem to have researched the 'benefits' angle quite thoroughly. Presumably you could go in with a really low offer and promise a quick completion.
I'm a little puzzled about the 'interest only' aspect though. It would make more sense on a repayment I would have thought.

lostinrates

zzzLazyDaisy wrote: »

in the longer term I would be looking to take an interest only mortgage against the property and release some of the capital.



Daisy

How would the actual mortgage be repaid though? at the end of the term you'll presumably want to know that your son is secure in his accomodation?

CLAPTON

presumably you are formally charging your son a proper rent so he can claim LHA.

you will then need to declare and pay tax on the rental income.
if you have a mortgage you will be able to offset the interest against the rent... the mortgage doesn't have to be on the flat so if you have a mortgage on your own home you can offset this (up to the value of the flat)

zzzLazyDaisy

Microstar wrote: »

I'm a little puzzled about the 'interest only' aspect though. It would make more sense on a repayment I would have thought.

Hi thanks for your prompt reply. The only reason I was thinking interest only is that the rent would be taxable, but the interest is wholly deductable. So if I get an interest only mortgage the rent would cover it and no tax would be payable. However, if I take a repayment mortgage, the repayments will have to come out of my savings, as I don't work and so don't have spare income.

The money I raise through the mortgage would go back into my savings for me to live off. Of course tax would be payable on my savings interest, but this is compensation I got from a car accident and I need to be able to use it when I need it, so having it tied up in the house isn't an option, and as I say, I am not sure that I can afford the extra payments needed on a repayment mortgage.

I appreciate that when I die this will leave my son in a flat that isn't paid for, but at that point he will inherit my bungalow which is mortgage free, so that won't be an issue.

Does this explain things a bit better?

Many thanks for your input

Daisy

zzzLazyDaisy

lostinrates wrote: »

How would the actual mortgage be repaid though? at the end of the term you'll presumably want to know that your son is secure in his accomodation?

Actually, I hadn't though of that! I was working on the assumption that teh mortgage would continue till I die, when he will inherit my house anyway.

But you are right, I am only in my 50's so I could conceivably live another 40 years.

Hmmmm...... maybe a repayment mortgage would be better!

Thanks for that!

zzzLazyDaisy

CLAPTON wrote: »

presumably you are formally charging your son a proper rent so he can claim LHA. you will then need to declare and pay tax on the rental income. if you have a mortgage you will be able to offset the interest against the rent... the mortgage doesn't have to be on the flat so if you have a mortgage on your own home you can offset this (up to the value of the flat)

Thank you, yes I will be charging my son a market rent, and I understand about the tax implications. I do have a home and it is mortgage free, so getting a mortgage against that is an option I hadn't thought of, thanks.

Kez100

Check if you have to actually raise the mortgage and the cash used to purchase the property for interest to be offset for tax purposes. That used to be the case. However, I have a feeling there was some new rule around which changed it a bit, but do not know what it is or if it stacks up with HMRC.

GDB2222

Wouldn't the rent replace your lost interest? Getting a mortgage so that you can place the money on deposit does not make sense to me, as the interest rate you would pay is more than the interest you would earn.

Apart from that, with due respect, you have only looked at two options: your son staying where he is, or buying this place. There is a third option, namely renting somewhere more salubrious for a while and then buying. Does the accommodation need to be specially adapted? Does he find change difficult?

zzzLazyDaisy

GDB2222 wrote: »

Wouldn't the rent replace your lost interest? Getting a mortgage so that you can place the money on deposit does not make sense to me, as the interest rate you would pay is more than the interest you would earn.

Apart from that, with due respect, you have only looked at two options: your son staying where he is, or buying this place. There is a third option, namely renting somewhere more salubrious for a while and then buying. Does the accommodation need to be specially adapted? Does he find change difficult?

Thanks, yes you are right the rent would replace the interest on my savings - but I have needed to dip into the capital from time to time when my heating broke down etc, so tying up all my savings in the flat would mean that I would have no 'rainy day' money if I needed it. Perhaps the best way would be to pay cash and then just release some of the money later if I found I needed it.

Re renting somewhere else - It took him weeks to find this place because most LL's will not let to tenants on benefits. Also he has a dog, and this makes it difficult to rent a place (understandably), but the dog is his companion and having the dog to walk makes him get up and go out, even when he doesn't feel like it. Also, the rent is already higher than his LHA, so there is no way he could afford somewhere in a better area. I already help him out financially, so him moving to a better area, with higher rent, would be a bigger financial strain for both of us.

But I haven't ruled this out, unfortunately when he got this place he had to take what he could get as his last tenancy came to an end and he needed somewhere quickly. So we will continue to look around and see what comes up.

Thanks for your input, much appreciated

zzzLazyDaisy

Just a thought - there will be a maintenance charge for upkeep of the gardens and common parts. Does anyone know if that is also tax deductible?

Thanks