Buy to rent to pregnant daughter

99blooming9

Hi forgive me if this has been delt with already but here goes.
My 19 year old daughter currently lives with her boy friend (22 years old)
and has just told my wife and I that she is expecting a baby in May.
They are looking to move out of his parent house and as neither of them have 2 pennies to rub together they are going to rent current rent for a 2 bed terraced house in the area is Approx £375 pcm.
She is employed in a local greengrocers and earns minimum wage and he is a self employed joiner ( his income is very erratic at the moment he is on a decent wage but for the first 6 months of the year he was lucky to see £100 per week)
I have a mortgage reserve and savings that would just about cover the purchase of a £80,000 terraced house.
Where do I stand if I rent them the house at £300ish pcm
What about local housing benifit would they qualify?
Could I give them/ should I give them a rent book for £400 and only take £300?
I just feel I would rather own the house myself than have to sub them when money was/is tight and pay some other owner my hard earned cash.
I really only want whats best for my daughter and of course my future Grandchild.

marcg

Makes sense to me. Only three ifs and buts occur to me:

You will probably have to pay tax on the rent you receive.

Will the council be willing to pay housing benefit for your daughter to live in a house you own? Best phone them to check.

If you ever need to claim benefits, the fact you own a second home will probably exclude you from those rights.

You should definitely talk to a solicitor about this next idea but - couldn't you buy the house in her name? Give her the deposit and act as guarantor on the mortgage. That way she gets on the housing ladder and you don't have to get into the tax situation of having two houses.

Do me a favour though and don't put the boyfriend down as a joint owner. No disrespect intended (especially as I don't know you) but 19 and 22 with a baby on the way is the usual recipe for single mum with a 3 year old as far as I can tell. If they're still together in a few years then you can always add him in later.

Jowo_2

Yes, renting to relatives on LHA when the landlord doesn't live in the same property is permissable so long as it isn't seen to be a contrived tenancy, set up to exploit the HB system, and therefore must be on a proper commercial footing.

Search this, and the landlordzone rental forum, for 'contrived tenancy' to see how to avoid this.

For example, local authorities aren't impressed when a landlord charges their tenant full rent when they are benefits and drops it when they are working.

There are LHA calculators online and a benefit entitlement calculator called 'Entitled To' - you can get them to check out if they could get a LHA top up. I can't see a full time worker and a part time worker with no dependents being eligible for much but you can always check.

What you also have to consider is the impact of that £100 per week that you give them on means tested benefits - it qualifies as income. Also, tenants receive the LHA directly - not you. There is apparently an allowance that tenants can retain legitimately if more LHA is paid than the rent charged which the LHA website will detail but I understand that's getting scrapped.

Edit - belatedly realised that daughter has dependent on the way...

Jowo_2

marcg wrote: »

You should definitely talk to a solicitor about this next idea but - couldn't you buy the house in her name? Give her the deposit and act as guarantor on the mortgage. That way she gets on the housing ladder and you don't have to get into the tax situation of having two houses.

.

Perhaps an alternative method of supporting them but also ensuring self-reliance is to gift them the deposit for a private rental and act as a guarantor if the landlord requires one. Be sure to search this forum on the risk of being a guarantor, though.

It gets them used to standing on their own two feet, learning budgeting skills and having an almost 'probationary' period in the real world rather than being immediately subsidised by the bank of Mum and Dad who further plan to top up their income by gifting them some of the LHA.

Or put down a large deposit on a house in their name so that they can take responsibility for paying off the smaller remainder based on their income. Remember, home ownership doesn't lend itself to the kind of generous and quick subsidies that renters on low incomes enjoy through HB so this has to be considered (HB isn't paid to home owners though there are schemes to pay towards mortgage interest).

furndire

So long as you have a proper rent agreement in place you can rent to your daughter. You will pay tax on the rent, but if it is mortgaged that is taken in to account.

Fire_Fox

99blooming9 wrote: »

Where do I stand if I rent them the house at £300ish pcm
What about local housing benifit would they qualify?
Could I give them/ should I give them a rent book for £400 and only take £300?
I just feel I would rather own the house myself than have to sub them when money was/is tight and pay some other owner my hard earned cash.
I really only want whats best for my daughter and of course my future Grandchild.

That sounds like fraud to me! :eek:

orangeslimes

Fire_Fox wrote: »

Quote:
Originally Posted by 99blooming9
Where do I stand if I rent them the house at £300ish pcm
What about local housing benifit would they qualify?
Could I give them/ should I give them a rent book for £400 and only take £300?
I just feel I would rather own the house myself than have to sub them when money was/is tight and pay some other owner my hard earned cash.
I really only want whats best for my daughter and of course my future Grandchild.

That sounds like fraud to me! :eek:

Rather than commit fraud I think a good idea might be to do something like charge the full £400 (if that is the going rate) collect it and take it and then putting £100 away into a savings account for your grandchild each month?

Jowo_2

Fire_Fox wrote: »

That sounds like fraud to me! :eek:

But is it really fraud on the part of the landlord if he legitimately receives LHA for his daughter but gives her money each month as a gift with his father's head on? After all, he could be paying this sum separately out of his pension or wages.

The only thing that I could think that would amount to fraud is if the recipients of LHA didn't declare unearned income which affects any means tested benefits they receive (erm, like LHA ...).

I know its an odd combination (buying a house with personal money to save his daughter the expense of local private housing and proposing to give taxpayers money to her as well) but is it actually illegal? I doubt it.

Fire_Fox

Jowo wrote: »

But is it really fraud on the part of the landlord if he legitimately receives LHA for his daughter but gives her money each month as a gift with his father's head on? After all, he could be paying this sum separately out of his pension or wages.

That isn't what the OP said tho, is it?
"Could I give them/ should I give them a rent book for £400 and only take £300?"
That reads like a deliberate attempt to get an extra £100 out of the [STRIKE]government[/STRIKE] taxpayer. :rolleyes: I don't completely understand what a contrived tenancy is, but this has to come pretty close.

Jowo_2

I thought a contrived tenancy was, for example, when the landlord charged his relatives maximum rent when eligible for LHA but did not charge them any rent when they are in employment, for example. Or did it without any evidence of it being a proper tenancy - such as not producing a contract.

As a minor note, rent books are only required by law when tenants pay weekly.

A tenant can retain a small sum greater than the rent if their LHA is higher than it. What's the difference if a landlord charges commercial rent and then gives the tenant a regular rent rebate? I'm not aware that LHA and the rent has to coincide anyway - many tenants pay top ups to the landlord greater than their LHA so what's particularly wrong with a landlord giving extra back to the tenant? I don't know the answer, I'm just musing.

Fire_Fox

Not saying I am correct, more playing devil's advocate here ....

"Having investigated the first two issues and having found that neither 9(1) a or b apply, a Local Authority may, where there is some doubt over the validity of the rent liability decide to investigate whether a commercial tenancy has been set up to take advantage or to abuse the Housing Benefit system. If the Local Authority has fully investigated the claim and they subsequently decide that the tenancy is contrived, a claimant may then be asked to provide further evidence to convince them otherwise. The Local Authority will look for:

Landlord’s contrivance – where a landlord is considered to be taking advantage of the system by, for example, charging very high rents and only accepting tenants who are not likely to be subject to rent restrictions. If it can be shown that landlord charges more rent to people claiming benefit than he does to tenants paying the rent out of their own pockets for example then a tenancy may be deemed contrived.

Unnecessary liabilities - whether the claimant has taken on an unnecessary liability. An unnecessary liability is one that the claimant could have avoided and still been adequately housed. It is not the reliance on HB that is the major concern. What is more significant is the decision of someone who already has somewhere to live taking on a liability that they know they cannot pay.

Examples of evidence used by claimants to show that a tenancy is not contrived:
- A commercial agreement, such as a Tenancy Agreement document, a Rent Book, or bank statements showing evidence of regular rent payments.
Mortgage statements from the landlord showing that payments are needed to be met by a rent payment."

http://www.ownershipoptions.org.uk/pdf/Buying%20to%20let%20to%20a%20relative.pdf

I am no expert on this so had to go and look it up; I still maintain that a tenancy such as the OP suggests would come close since
(a) the OP only requires £300pcm to service the mortgage
(b) the tenancy agreement and actual payments will not match
(c) the additional £100 is therefore an unnecessary liability.