Newbies buying house to let (to daughter) all comments gratefully received.

starlights

RAS
The full market rent cannot be covered by LHA but she has only just discovered she can claim this so this is why she is looking for a private rental as she is used to budgeting for her rent so she will have this and LHA to pay for difference in rent and council tax etc

dopester

starlights wrote: »

We have had some money sitting in our bank for several years after paying off our mortgage on the house we live in.

starlights wrote: »

We will be mortgaging against existing property

All I'm going to say is you knowingly put yourself in a position where you go from having no mortgage on your own home, to having a mortgage. Are you retired?

If you proceed, I hope you will be able to repay your own home mortgage (having gone from no mortgage), whilst also hoping your BTL doesn't fall into mortgage payment problems where they lender wants to come for it, and make up any shortfall owed with a claim against on your own home.

What happens if you daughter's circumstances change? If she drops another couple of babies? Or has a job offer from elsewhere, or meets a guy from a new area and wants to move in with him? Or countless other possibilities, including value falling from what you've bought it at.

starlights

Dopester
Thanks for your comments, It is the bleaker side I need to consider. We are really letting our heart rule our head with this one.
No we are not retired and can cover the mortgage repayments, but do not obviously want to do that.
If she were to move out then we would in all liklihood continue renting out to other tenants.
The money we have in the bank is doing nothing interest wise so after the mortgage is paid off this could be part of our pension (?) Have I just opened a whole new can of worms?

dopester

Not wanting to influence your decision, but I also have a significant sum in the savings.

For me capital preservation is far more important than chasing higher returns in the difficult economic conditions. I'm content with the low rate, compared to the risks of losing capital in other investments.

It's my belief that interest rates are low on savings accounts because the risks out there with many other investments are very high. However we each make our own decisions and some people will make a lot more through using their savings for other investments.

starlights

Dopester
I think our primary concern is not making money but to take some stress off our daughter by helping her move to an area where she feels safer and allows our grandson a little more freedom. It's something I wouldn't want to regret not doing later when we might not be in a position to help.

Annisele

starlights wrote: »

Dopester
I think our primary concern is not making money but to take some stress off our daughter by helping her move to an area where she feels safer and allows our grandson a little more freedom. It's something I wouldn't want to regret not doing later when we might not be in a position to help.

The simplest way to achieve that (not necessarily the best!) would probably be for you to just give your daughter a set amount of money each month - thus enabling her to rent a nicer property than she can currently afford.

If you buy a property for your daughter, I think it's extremely unlikely that she'd be able to claim LHA, for all the 'contrived tenancy' reasons other people have mentioned. When you work out the costs of each option, I think you should assume that LHA won't be available and take it from there.

There are plenty of people who have lost money on BTL investments. They can work out very well - there are professional landlords on here who can attest to that - but at the other extreme they can bankrupt people.

You might want to seek financial advice regarding your worry that the money you have in the bank isn't doing anything for you. It is possible that you might be better having some of your money in corporate bonds/equities/property rather than all in cash. Putting all or most of your money into one property doesn't help you much with diversification, and it's a relatively high risk strategy. High risk doesn't equal bad, but you do want to make sure you're making the decision with your head and not your heart - though I can absolutely understand why you want to help your daughter out.

mchale

With regard to a "contrived tenancy" as long as you are charging your daughter a fair market rent, she is residing at the property & a legal tenancy agreement is in place, I would say you have no worries, if you google it you will find more info

lizzielondon

ericonabike wrote: »

I'm in a similar position, but son is working and we therefore want to charge him a lower-than-market rent. This no way covers the mortgage we would be taking out on our own property, but we can afford the repayments ourselves. We intend using him as a 'guinea pig' tenant, doing everything by the book, against the day he moves out and we do it for real. Try the Registered Landlord Association site for guides on what landlord responsibilities entail. I couldn't comment on the Housing Benefit/contrived tenancy element, other than to say it seems reasonable to pay rent, even to a close relative. You might want to try a welfare rights adviser at your council for that.

i believe this then would be a contrived tenancy..

Dan_1976

This would not be a standard buy to let as your letting to family. It would be a regulated loan and your income may or will need to cover it.

All these different and sometimes harsh posts, you have to do what you have to do. You cant make business choices when its your daughter with a young son living in a bad area and you wont to make sure they are safe.

I would live on bread and water for the rest of my life if it was the only way to keep my boys safe!

Starlights, talk to shelter, talk to the local council of the area you want them to live and also get a good broker. The local council will help you and give you advice they wont be out to catch you out.

The benefits system is full or ifs and buts and a few maybe's!

Contrived tenancy

You cannot claim HB if the local council believes that your liability to pay rent has been created to take advantage of the HB scheme. For example, if you live rent-free while you are in work, but have to pay rent when you are unemployed.
If you can satisfy the local authority that the arrangement was not intended to exploit the HB system, you may be able to get benefit

starlights

For anyone who may be in similar circumstances searching this site and comes across this thread.
We did buy a house and our daughter is living there. It is all done as commercial tenancy, she more than anyone was very aware of what could go wrong and how she would deal with things. So far so good. Daughter is much less stressed, has some good neighbours and is much more confident about the area. Grandson has a lovely big,secure garden to play in and has settled into a nursery nearby.
The nail biting part was that she had to move into the property before she was able to apply for LHA at this property, so basically take the plunge and cross fingers. We did not have to go to a contrived tenancy panel but we received a form to fill in and had to send some papers relating to mortgage and safety at property and she went for meeting at housing offices. She was successful and kept her allowance for this property.
What will we do when she leaves? We will keep the property as long as we can maintain it and continue to let it off. The end of the mortgage and my retirement come at the same time so hopefully it will be a pension. We realise that there may be problems with some tenants along the way, we have spoken to landlords who have had problems, and whilst at the time they have been set back, none have been long lasting problems with great losses. We have also spoken to landlords who have had no problems! For us at the moment all is going well. (Should I have written that?)
Thanks to everyone on here who gave us something to think about.