buy a house, rent back to mother on job seekers!

Batchy

Hi All,

For one reason or another my mother has moved back from abroad after living out there for 6 months. it didn't work out. She is now homeless technically, and needs to sort things out. Obviously no job etc, my little sister of 17 is now back in FT Education.

If I was to buy a house in my name, and then rent it out to my mother with my sister living there, would she be able to make a claim for housing benefit, to help her pay the rent I charge formally rather than being at the mercy of a private landlord.

Is this even allowable? since im her son and the close relationship that goes with that?

Obviously, I'd love to help, but wouldn't be able to afford to do it out of the kindness of my heart as I have been saving hard for a deposit for our house upgrade to bigger house due to increasing family size in future. So would need to top that back up eventually. Unfortunately charging a market rent would be the only way.

I could only do it by being the one that would accept her as a tenant without references etc, and wouldn't be credit assessing her, as she also doesn't work etc. She will be looking for work when she settles down somewhere, but at the moment she is in complete limbo, but has always run pubs which come with accommodation included etc. Unfortunately business failed like many other pubs.

I want to help, by charging a suitable market rent, which would be paid via benefits, would the DSS be happy with this arrangement bearing in mind the relationship until she sorted out employment, when she has the opportunity etc etc.

I know it doesn't sound right, but my mother has limited options and would struggle to get a place privately without deposits, guarantors etc, etc. I know this as my sister has gone through a similar process (also run pubs) and it took over 6 months to get somewhere suitable.

Thanks in advance for any advice or experience in this matter.

cheers

immoral_angeluk

Claiming housing benefit/local housing allowance (which it would be LHA for this scenario) for a property owned by family is complicated, you should get some specialist advice on the implications, and contact the council. The last thing you want is to do it and find that you're stuck with a mortgage because they won't pay her the benefit

Pee

I would suggest that acting as guarantor for your mother would be a more defined financial risk for you.

If interest rates go up and your mum is struggling to pay the rent, possibly after she has found work or if she cannot live on benefits, then you are going to find yourself trapped financially.

Batchy

I can see what your both saying! And both of you are correct.

If I was to say, I would like to one day be a BTL so exposing myself to the risk reward scenario would rather do it with mother benefitting from current situation than doing it with some stranger involved who I don't know whether to trust.

If I was also to say I find it hard to believe mom will find work for a fair amount of time. Also the house, would be a very cheap 100k house, found at a bargain price. And probably very local to where I currently live. on that basis, there would be help in other area's too, like looking after grandkids etc in future. Who knows!

The biggest problem is it all going through, then in one years time the legislation changing, so its not possible to continue, due to the changes in policy "close family" etc.

Im trying to make good of a difficult situation. I guess its profiteering but balancing the risk / reward correctly so I don't feel like im being taken for a ride.

What difference does it make to the council, as opposed to another private landlord etc...etc... one BTL is no different to another, if they know the tenant or don't know the tenant or have close family ties is there? the only difference is the leniency towards occupancy check references etc.

I know its difficult but just wondered if there was any guidline printed anywhere so its an arms length transaction as far a possible and within the rules.

BitterAndTwisted

I suggest you investigate what a Local Authority would define as a "contrived tenancy". If you were to act as your mother's landlord you need to have a fully signed rental-agreement and be prepared to treat her like any other tenant, evicting her for non-payment of rent etcetera.

I would also recommend you consider acting as her guarantor only. This entails a risk but not as great as saddling yourself with another mortgage. There have been no end of threads on this board by people who have come to grief either acting as guarantors for friends and family or being their landlord. It's not something a sensible person would take on lightly. Before you do anything you should check what the local authority's LHA is for a person in your mother's circumstances and see what the maximum amount of rent they are willing to pay is. This might suggest the best route.

I would also warn you to not be too optimistic about your mother's employment prospects. Things are very difficult right now. Pubs are closing at the rate of about 50 a week, so there might not be any prospect of finding work in that field in the immediate future.

simpywimpy

I been on both sides of this, lived in a rented accom owned by my father, and rented a house to my son (different times obviously)

The council ask you to declare relationship but it shouldnt matter that you are related as its not being done for the wrong reasons eg its not a scam where the house is actually your mothers but but in your name if you see what I mean.

Batchy

Contrived tenancy is the word I was looking for! It would be an arms length transaction, its not something I have made my mind up on, its just something to consider if she isnt able to develop other options in the future. Still have a lot to think about, any further advice is welcome.

I would be open about it all with LHA, and wouldn't want complications at all.

Catblue

Do you have a residential mortgage for yourself and your own family at the moment?

If you get a BTL mortgage then you need a 25% deposit. Do you have a spare £25K or so at the moment? Is your wife happy for you to hand over £25K or more to secure your mum's accommodation? What about your wife's family - presumably you'd both be happy to help them in this way also?

You also mentioned that you want to move to a bigger house yourself as you anticipate your own family running out of space, so this BTL scheme could very well jeopardise your own move to a bigger (and therefore presumably more expensive) house. You'll be at least £25K down for a start.

Batchy

Hi Catblue,

No I do not have a residential mortgage at the moment. my partner does, she is not my wife! (at the moment) She pays the mortgage, its her and her ex's house and they have a child. I live with them legitimately at the moment, with no complications fortunately.

I have already an AIP for a fairly hefty sum and recently received a good payrise also so that should be extended, and have also got the £25k deposit for a 100k purchase or more if needed.

I could save another deposit in 12 months (roughly) to add to my partners deposit (in 12 months) when she has sorted the house out with her ex (no rush per today and her ex wont be rushed either unfortunately). But thats another story. (effectively I could buy her ex out cash at the moment, and take on the mortgage which they share with my partner together)

Your right she wouldn't be happy with the deposit ive saved disappearing, but then she wouldn't be happy if we had to move mom into house to help her out as she is actually homeless, and I couldnt have her living in a cardboard box on the street now could I?

Would it jeopardise the house move, if I was generating an INCOME from the rental, over and above the mortgage, yes, id have less deposit, but i'd have an income to compensate for the extra 1% on the interest rate we might suffer as a result. So overall, as long as I fix the rates on the BTL, effectively after 20 or so years, house is paid for, BTL is paid for, and income is coming in too. BONUS?

Everyone's happy? or not? am i blinkered? I know it could cause stress, but im stressed thinking how to help mom too... she is slightly trapped at the moment, and doesn't know what to do. She was entreprenaurial, and its all back fired and she is left with nothing. But problems!

puddy

i get a bad feeling from these plans to be honest. no offence, but is your mum slightly fantastical, in that she goes off to start a big plan which doesnt hav much financial acumen behind it, then come back with desparate times and someone (you) has to sort it out?

do i take it that your 17 year old sister lives or lived with your mum abroad?

if so, i feel that there is a great deal of irresponsibility to her, lack of planning, lack of insight,,, if you want to get tied up in that, so be it, but i wouldnt expect your partner to stick around if the poo hits the fan

in addition, your future plans for houses with your partner is tied up to some degree with her ex. he could get shirty (and it sounds as if he may already be where you say that he is no rush 'unfortunately' to move the situation along)

keep your life and plans as simple as possible, by all means agree to be guarentor for your mum to rent somewhere, put up the deposit or something but for gods sake do not buy a house for her to rent, it will end in tears

RAS

HI

LHA is the Local Housing Allowance. This is the maximum amount the Local Authority will pay twoard rent for a family of two people inc mother and teenager in education.

You need to know how much this is.

And most BTL mortgage require the rent to be 125% of the mortgage payment.

So MPx1.25 neds to be higher than LHA