How to help unemployed single mum onto the housing ladder?

jakehamble

Hello all

I wonder if anyone has any suggestions.

I’m trying to help my sister out of the ‘rent trap’. She’s a single mum with 3 kids (ages 8, 2 and 9 months). She’s unemployed, but wants to get enrol on a course to help her find work later. She lives in rural Wales. She’s currently renting, with the rent paid by housing benefit. The landlord is not good at keeping the house in great repair.

A minimum price for a suitable house seems to be about £133,000. We can get together 10% to pay a deposit for that, but I think it is impossible for her to get a mortgage for the remainder.

The alternative is for a trusted friend or family member to buy the house and rent it out to her. This would require 25% deposit but this could be raised by moving that money from an existing mortgage. Rent payments charged would then need to reflect all the extra money borrowed. An informal agreement with her would then transfer ownership of the property at some point in the future when convenient. The downsides of this are tax issues on the rental income (less mortgage interest payments)and Captial Gains Tax.

The other big downside of this is that typical rents for this kind of suitable property are about £500/month, while the mortgage payments on it would be more like £950-£1000. I don’t think it would be possible for her to get housing benefit payments more than £500.

Does anyone have any suggestion how I can help her get on the housing ladder, for the sake of her kids future?

Thanks for any advice!

Jake

black-saturn

Theres nothing stopping you or any other family member buying a house and renting it to your sister and using the housing benefit to pay for or put towards the mortgage. There are 2 rules you must follow with this and these are that you must treat it just as you would with any other tenant, i.e. they must have a legal tenancy agreement and have all the required gas safety checks etc etc and it is also a requirement that the housing benefit gets paid straight into the owners bank account. I think this is to stop the owner letting the tenant keep the money at letting them live there rent free.

I'm not sure about the legal implications of signing the house over to her when the mortgage is paid off and how that works though. But I'm sure someone will be along to advise you soon.

Doozergirl

I don't think a mortgage lender would be happy with the house being rented to a family member. I'm not sure that you can pay housing benefit to a family member either. So a VERY trusted friend it would have to be.

There's no way a mortgage on £133,000 would cost £950-1000 a month. It would be more like £600. I also doubt that any perceived profit would come in at anywhere near an individual's CGT allowance, so they probably wouldn't have to pay that.

I'd be more inclined to try and help her get on her feet, back into employment and then maybe help her with the deposit when she's ready to accept the responsibilty of owning her own home. I'd rather have my family help me into a position where I could support myself than feel pressure to keep up the mortgage payments for someone else. What if interest rates rose and housing benefit didn't cover the mortgage anymore? There's no extra income to draw on and it's the official owner of the house that is going to take the full force.

jakehamble

Thanks black-saturn.

One of the main issues is about how to make it affordable to pay the balance. If she can only get £500 and the mortgage payments are £1000, the obvious answer is it can't be done.

I'm hoping someone exceedingly clever here can help with that predicament. A bit of lateral thinking is probably required!

Jake

greencat_2

Seriously?

I grew up in rented accommodation and I like to think I turned out OK (managed to get happily married, earn above average salary and post-graduate qualifications). I am, however, still in the rent trap so you may wish to take my advice with a pinch of sodium chloride.

Still my rent is cheap and I can save lots for when houses are, hopefully, more reasonably priced.

I don't see an obvious way out other than what you have suggested. It would probably be easier to formalise any agreement though to avoid misunderstandings later (eg would she pay market rate or the original price for the house).

Unless she is in work (not the easiest task living in rural Wales with 3 kids to look after on her own) - perhaps the best option is to seek a better rented place to live. Helping out with the deposit and tiding her over until the housing benefit comes through would probably make it more acceptable to a future landlord.

Mrs_pbradley936

You could set up a deed of trust. We did that to help our son buy a place, the place is in his name not ours because of Capital Gains Tax, although we provided funds. See a solicitor because there are ways of doing this taking individual circumstances into account.

clutton_2

why not look at part ownership via housing association joint venture schemes ?

black-saturn

Doozergirl wrote:

I don't think a mortgage lender would be happy with the house being rented to a family member. I'm not sure that you can pay housing benefit to a family member either. So a VERY trusted friend it would have to be.

A mortgage lender will be OK with a house let to family. It's just a buy to let mortgage like any other and you can pay housing benefit to a family member as long as they act like a proper legal landlord and they have a proper legal tenancy agreement.

ollyshaw

I agree with greencat. By renting she is approx £500 a month better off! Whats the rush?

Olly

clutton_2

Black saturn, i am sorry, but, i have to disagree with some of your points. Housing Benefit offices will generally not agree to pay housing benefit to a claimant whose landlord is a close family member - unless, that close family member can prove that the property was bought as an investment property prior to the family member becoming a tenant. So, buy a house this year, tenant it for 6 months with any old tenant, next year, move in a family member.

Many BTL lenders specify in their T&C's that family members may not be tenants - whether mortgage-payers take any notice of this is another matter !

black-saturn

Heres the text I found from a Housing benefit government site:

Where a Landlord Rents Another Property to their Close Relative]

There is no legal rule which prevents close relatives entering into a legally binding agreement to pay rent and claim Housing Benefit where they do not occupy the same dwelling. The authority would again be looking at whether it is a commercial agreement and whether it was set up to take advantage of the Housing Benefit system.

Please note that Housing Benefit is not payable in the following circumstances:

where a person rents their accommodation from a trust of which they are a trustee or a beneficiary (Reg 7(e))
where a person rents their accommodation from a company of which they are a director or employee (Reg 7(e))
where a person rents accommodation from a trust of which his/her child or partner's child is a beneficiary (Reg 7(f))
where the person who rents the accommodation was previously a non-dependent of someone who still resides in the property. If you can show that the tenancy was not set up to abuse the system you should still be able to get Housing Benefit (Reg 7(g))


which was found about half way down this page:

http://www.housingoptions.org.uk/gi_factsheets/gi_fs_17.html

My aunt lets a house to her daughter and I also rented a house from my nan for a while and both whilst in receipt of HB.