A rather unusual problem - |BTL to save money

BearAssCheek

Hi - appreciate this is rather a unique situation, it IS actually a problem for me though wondered if anyone could give some perspective please.

I am a freelance IT consultant, living in rented accommodation with 1 months notice. My rent, whilst reasonable for the area, is more than a mortgage would be on similar property.

As for many people, work has all but dried up, I can't seem to get a job anywhere as companies are now tightening their belts.

I have some equity from a previous property sale in 2002, and I have been 'meaning to...' buy another property but never got around to it as prices escalated out of reach. I have enough to buy a small detached house in an OK-ish area about 10 miles from here. I would be able to buy it outright (not bragging, just fact and due to very lucky circumstances). It would leave me mortgage free with just bills to pay. The house is a bargain - some £30K under 'market value' and £40K under top price paid for the street.

Co-incidentally, my brother who is also unemployed, is living with a friend in the same area as this house. He has already said if I did buy somewhere he would get the council to rent it from me if possible (even with recent HB cuts would still be a good rate).

Q: Is it a good move to use this strategy to SAVE money? Effectively, by doing this I could potentially pay my rent on the flat, my brother gets a roof over his head and I get to invest in a bargain property which I could live in if needs be and things get really tight.

This is a serious question, and I do appreciate that some folks are struggling. But if I keep paying out this amount of rent with no income, pretty soon my equity will drain away also if I don't get any work.

Gulp! Would really appreciate thoughts on this - its a bit tangled!!

thanks in advance.

poppysarah

Your brother probably couldn't get HB for the tenancy ... unless it's a valid tenancy for which you'd throw him out if he didn't pay rent.

Fang_3

Why should the taxpayer pay you to house your brother?

G_M

consider getting a mortgage; the interest is tax deductable.

Buy Tessa Shepperson's book and do a proper budget on the costs/potential income of this business idea, and compare it with other start-up business ideas.

lincroft1710

If you can afford to buy the house and the below market price isn't because of some "hidden" defect or problem, then why not buy the house, live in it and rent a room to your brother.

BearAssCheek

Fang wrote: »

Why should the taxpayer pay you to house your brother?

Yer, didnt mean this the way it sounded. The fact that my brother is nearby is co-incidental and convenient, but it could be anyone actually, as I do appreciate that HB might be denied. The principle applies, essentially buying a house to let (to anyone, HB or private), in order to prevent paying out high living costs when I have no income.

I couldnt get a mortgage as I have no steady income and only 2 years accounts, with no forseeable new pipeline.

Appreciate its a bit unusual as i said......

Jowo_2

Google 'contrived tenancy' to understand your obligation to ensure it's a valid commercially run tenancy in order for the local council to approve payment of HB to a close relative of the landlord.

Weigh up the risks of having a business relationship with a relative. In essence, you'd have to be willing to evict him for rent arrears and consider how landlord/tenant disputes can actually ruin a personal relationship.

Factor in Capital Gains tax - yes, you might get a decent rental payment but then how much would you lose in tax when you sell up in future?

Think long and hard about the benefit trap you could be setting for your brother. A good LHA rent while he's on benefits can be an unaffordable rent when he returns to employment. Some people get in a rut and get trapped on benefits because they think its not worth their while working - the withdrawal of payment of council tax and LHA, plus the cost of getting to work, etc, can be a barrier to gainful employment.

Where are you proposing to live? Because if it's a 2 bed property and you plan to live there, LHA is not payable when the landlord lives in the same property as the claimant and is a close relative. If you are living elsewhere, then what are your living costs there compared with living in your own place for free?!

BearAssCheek

Jowo wrote: »

Google 'contrived tenancy' to understand your obligation to ensure it's a valid commercially run tenancy in order for the local council to approve payment of HB to a close relative of the landlord.

I've just checked and the council would need evidence of a 'commercial tenancy' ie. tenants in before my brother, which is fine. Might be a good thing to think about the lodging idea which helps all round.

thanks everyone!

minxtress

Fang wrote: »

Why should the taxpayer pay you to house your brother?

If they werent paying rent on this house they would for another, and Im sure this gentleman has paid more then his fair share of taxes!

My friend rents her house off her parents and the HB pay the rent in full so no reason why they shouldnt in this case.
The only difference may be they may not pay the full amount if it is more than a one bedroomed place and he will have to make up the shortfall.

G_M

You need to be clear whether this is a financial decision - a business, or whether you are doing this to help out family...

If it's business, do NOT rent to your brother. never rent to family or friends. Too risky. What if his financial circumstances change/he loses his job whatever? Will you evict him as you would a 'normal' tenant?

Jowo_2

BearAssCheek wrote: »

I've just checked and the council would need evidence of a 'commercial tenancy' ie. tenants in before my brother, which is fine.

I'm aware that it has to be a formally run, commercial tenancy, such as having an AST and for the tenant to pay rent when they work, not just when they are in benefits.

But the requirement for you to have let the property to previous tenants is one that I've never heard of before as a condition.