Help - Buying to Rent to close relative

thewez

Just looking for some advice.

Im looking to buy a 2nd property to rent to a close relative.

The close relative has 15% to put as a deposit.

Ummm just thinking, does this mean that we would need to find 10 - 15% also?

Thus on a £165,000 property, the close relative would pay £25000, leaving £140,000 for us to find. Thus I assume that we would need the 10 - 15% of the £140,000 to get a mortgage?

If so that would mean that we would need to find £14,000 +.

Anyhow I understand that as its a close relative I dont have to buy the property with a buy to let mortgage? What are the benifits of either, are there any tax benfits with either option??

Also is the any benifits to setting up a company to buy the house.

Also if I make a loss, ie rent in £500 a month, intrest on mortgage £600 ie a £100 a month loss can I claim this against my 40% tax libility?

Many many thanks in advance,

thewez

herbiesjp

If you are purchasing the property and you are looking to rent to a close member of family, you do indeed need a regulated BTL mortgage contract

HelpWhereIcan

If that close relative can be potentially classed as a dependant relative (usually parents, offspring - sometimes siblings), there are lenders who will lend or at least allow you to buy it under their second home criteria.

This will normally require a deposit of 10% upwards (15% is where most lenders come in) and the mortgage could/should be done in joint names with that relative (independent legal advice needed by both parties). If done in joint names, that could avoid you having to find a deposit and you could just use the one being provided by your relative.

Many will not look at the rental income, and most will require your income to be enough to cover both mortgages. eg if you have a mortgage of 100k now and want to borrow 100k for the new house, your income would need to support 200k under that lender's criteria. However, if done joint, your relative's income can also be taken into account to help if needed.

Doing it that way will potentially give you access to better deals, avoid having to find one of the very few 'regulated' buy to lets, mitigate the income tax situation as your relative could pay the mortgage rather than the rent, hence no tax liability on any rental income for you. You will have to fit a lender's criteria though. I have placed cases like this with Abbeyand Halifax this year - but they are not the only lenders who will do it so you should get personalised advice to make sure you do not ignore another lender who may be available.

Failing that, as herbie says, you will need a regulated buy to let mortgage (not many of those about). You would need your own deposit which sort of negates the reason for your relative to put one in.

As far as being a limited company goes, I would suppose most of the advantages would be tax related (talk to your tax adviser), but it may open up a few more buy to let lenders for you.

There are lenders who will arrange a buy to let mortgage for a limited company, but I would have to check if they would interpret the fact that the tenant will be a relative of the director(s) as needing a regulated buy to let. Cannot see why, but would need to check before assuming that it would avoid the need to find a regulated buy to let.

Hope this helps