Buy to let mortgage for my in laws.

sooz-eve

My in laws have a business loan secured on their house. Their business has gone into administration therefore the loan cannot be paid. Will the bank force them to sell their house? If this happens can I get a buy to let mortgage to provide them with a home?

Barney088

Maybe, If the bank wants it's money back in a hurry and there is no other way then there is every likeyhood that they will pursue the property to recover their debt.

Yes, it is possible to do a buy to let for them, but the rules change slightly with a buy to let for family members as it is not, strictly a but to let.

If I were the lender and you were buying their home (I assume that you intend to buy their home) I would be concerned that you were bailing them out of debt and that there was no way the rental income would be relied upon, therefore you'd have to have sufficient money to pay for your debt and mortgage as well as the new mortgage.

If you are NOT buying their home from them then lenders may not make the link but still needs a bit of caution on your part as to what happens if they don;t pay you, can you cover the debt?

sooz-eve

Thanks Barney. I would be buying a different property for them. I am trying to provide a property they can call home rather than them having to rent. Also they have a guaranteed income (ie. private pension) to cover the "rent". Do you have any more advice?

Barney088

Lenders won't like you to "rent" the property to your family members under normal circumstances.

However, if you buy a property as a buy to let (any tennant could move in) then you'll need a deposit of 15% of the property value typically and the rental income will need to cover the mortgage payments by about 1.25 or 1.3 times.

You will own the property and be liable for the mortgage payments from your account, whoever your "tennant" is then you'd collect their "rent" and pass this onto the lender, retaining any profit yourself.

THere are risks and impications in owning a second property, regarding tax etc.

AndrewSmith

The main reason that lenders do not like you renting a buy to let property to a family member is that it actually causes them a regulatory complication.

Buy to let mortgages are currently NOT regulated by the Financial Services Authority. They are also considered technically as semi-commercial.

If you allow a close family member to occupy the property or indeed occupy it yourself as a live-in-landlord, the property is then deemed not to be a commercial venture but a residential property. Residential mortgages ARE FSA regulated so The mortgage for this property would thus fall under the regulation of the Financial Services Authority.

There are different regulatory and legal processes the lender (and broker) will follow for residential mortgages vs buy to let mortgages. Trying to combine them will confuse the actual status of the property and the taxable status of any income received.

The other reason for them not liking it is the more obvious one, it would be very easy for us all to buy a home for our parents or children, without the need to prove affordability if one was allowed to effect a buy to let and rent to a close family member.

Also, if you did purchase under the auspices of Buy To Let and then subsequently let to a close family member you may find that the lender would not allow the mortgage to remain as an Unregulated Semi-Commercial Mortgage. As such this could have implications on your ability to offset rental income against what would be a residential mortgage. You would need to verify this point with a qualified accountant though, as this is now outside my own personal scale of knowledge.

Hope this helps

Andy

HelpWhereIcan

Depending on your current mortgage commitments and your income, there are lenders who may allow you to buy a 2nd property as a home for a relative using a normal residential mortgage, although they will want to be happy that you could afford both mortgages on YOUR income and will ignore any income your in laws may have.

One other route to consider may be for your in laws to investigate a 'bridging loan' to allow them to clear the charge they have in favour of the business loan/directors' guarantee using their pension income to prove affordability for it.

This may well give them time to sell or look for a remortgage with a lender who will do the full amount for them using their pension and any other income, but rates are high and they would need to be positive they can repay it within a short period of time (no longer than 12 months). However, it is commonly used to 'save' people from repossession and may well be suitable in your in laws' case depending on equity, income etc etc.

I would say that you all need to speak with an whole of market broker as soon as possible so that they can look at your combined circumstances and objectives and come up with a plan for you.

Hope this helps

payless

HelpWhereIcan wrote:

Depending on your current mortgage commitments and your income, there are lenders who may allow you to buy a 2nd property as a home for a relative using a normal residential mortgage, although they will want to be happy that you could afford both mortgages on YOUR income and will ignore any income your in laws may have.

yeah did one just like this the other day , and as it was a lender with an "affordability model" he total borrowing was still below their limit ... in fact was willing to go as high as 95% LTV on both properties ( not needed in this case) - on their normal range of rates

sooz-eve

Thank you everybody for your advice.