Helping mum...

mikmo

My mum (pensioner) lives with my dependant (disability) brother in our four bed family home. The mortgage £90k on a £250k valued house. Housing Benefit give her (including covering her rates) £300 per month but things are still tight.

She’d like to sell it to me at a discount and have me rent it back to her. Housing Benefits are fine with this so long as it’s all above board. Two motivations:

• Housing Benefit in a rental for her and a dependant is c. £450 per month. So more support from them.
• I could take out say £120k of mortgage and give her some cash to clear her credit card debts etc.

One problem, amongst others I’ve undoubtedly missed, is that selling to me at a discount could cause problems as the mortgage valuation will be based on this value rather than the valuation value, so the LTV will shoot up.
I’m thinking around ways to achieve those two goals but really struggling. Your suggestions around possibly suitable mechanisms much appreciated... should she gift it to me then I remortgage? What happens with the existing mortgage? Can I give her the cash? Can I pay her an annuity?
Thanks for reading!
Michael

PasturesNew

Google the term "contrived tenancy". She'd not get benefits on a house she previously owned, that was sold to a relative, at a discount....

Even though she sold at a discount to you, they'd then consider the "discount" as money she's actually received - again, probably negating any benefits claim she could make.

This is really more a question that could gain answers from [1] this board [2] benefits board [3] mortgages board.

silvercar

One problem, amongst others I’ve undoubtedly missed, is that selling to me at a discount could cause problems as the mortgage valuation will be based on this value rather than the valuation value, so the LTV will shoot up.

Not necessarily. A vendor gifted deposit is accepted by some lenders ie your mum is gifting you some of the deposit money. Lenders are likely to look more favourably on this when the vendor is a relative ie selling cheap to a family member is understandable, whereas a builder/ developers vendor gifted deposit looks like a false price inflation.

Housing Benefits are fine with this so long as it’s all above board.

Google the phrase "contrived tenancy". Often seen as a way of maxing housing benefit. One question asked is whether you would evict if the tenant failed to pay the rent, if not the tenancy could be considered contrived ie set up to milk the system.

What happens with the existing mortgage?

Its paid off with your purchase money ie your mortgage.

martindow

Google also deprivation of assets which could be an issue if your mother ever needs care.

mikmo

Thanks for the responses guys.

Deprivation of Assets looks closely at the timing and purpose of the gift. As my mum is only just a pensioner... probably at least 15-20 years away from a care home and the money is for her to travel etc. I don’t believe the purpose could be seen as deprivation of assets to get free government care. My other reading seems to support this.

Contrivance is potentially more of an issue. I did discuss contrivance with the housing benefit office. They stated as long as the agreement was commercial then it should be fine. Would this be commercial – House will be bought at a discount, rent at market rate, or slightly below (certainly not artificially inflated to get as much HB as possible). All would be in a formal tenancy agreement.

BitterAndTwisted

Despite the risks of this arrangement being deemed a contrived tenancy, which it patently is, do not believe for one moment that HB/LHA will pay the local market-rent for two people to live in a four-bedroomed property. They won't, so the rent will have to be at a pretty low level to cover the average local rent for a two-bed and this may not cover your mortgage payments. For confirmation of what those rents are for a two-bed you must check what the Local Authority's LHA (Local Housing Allowance) is. Also bear in mind that those LHA rates are due to be cut from April this year.

mikmo

Sorry, just realised I haven't been clear. By market rate I do mean market rate for 2 people (so yes, a very low rate relative to the true rent achievable in the house).


For this reason I think it isn't contrived?

I'll be personally subsidising the excess cost on the mortgage so my mum and brother can stay in the family home.

petebeale

Hi Mikmo,

Sorry to hear of your families difficulties.

This isnt my area of expertise, but have you looked to check you mum is claiming all the benefits she/son are entitled to? Thinking specifically of Disability Living Allowance and Carers allowance?

Best wishes

Pete

poppysarah

Why doesn't she sell it and use the money to buy somewhere smaller?

A 4 bed place is likely to cost a lot to keep warm.

mikmo

Ohh I’ve tried that angle! There’s no moving her!

Don’t worry she’s not too hard off, certainly won’t be once I’m paying the mortgage anyway!

RAS

mikmo wrote: »

Sorry, just realised I haven't been clear. By market rate I do mean market rate for 2 people (so yes, a very low rate relative to the true rent achievable in the house).

That is precisely what a contrived tenancy is. You need to let the house to her at the full market value for a 4 BED HOUSE.

She will only get LHA for a 2 bed house and that will reduce massively over the next year.