Buying property for son at University

k4kate

Hi all. We are currently considering buying a place for my son (and some of his friends) to live in while they are at University. We don't really want to be throwing away circa £350 a month on rent and have realised that aside from getting together a hideously large deposit :eek: then the money we'd get for renting out against what the potential mortgage payment would be work out quite well.

I know that becoming a Landlord can be a bit of a minefield and I have already read a lot of the very helpful posts on this forum about this subject; we also know someone who rents out several properties and is a very useful contact!

Anyway, we've spoken to our Financial Advisor and initially we were looking at the standard Buy to Let route and we were comfortable with this. Now he has come up with the suggestion that it would be financially better if we had a dependants mortgage because then we could have a standard residential mortgage. This would mean better mortgage rates and a much smaller arrangement fee.

What we are worried about is the legal and protection side of things. Would this make our son a landlord and his friends lodgers? Can we still have tenancy agreements in such a situation?

Any advice would be appreciated. There's plenty on the net about standard rental practices but this is a bit different and I'm not even sure what you would call it.

Thanks :beer:

hazyjo

Wouldn't call it 'throwing away £350 a month' when you take into account actual buying costs, and the interest on the mortgage, and possible price drops. Could end losing a whole lot more than he/you (wouldn't he be paying his own rent?) would in rent.

Even if it's for say 3 years at £350, that adds up to £12,600. That is paying for a roof over his head, and some utilities, charges, etc, so it's not entirely for nowt. You could easily wipe £30k off the value of any house over the next year or so. Who knows what the market's gonna do. At the moment, it's mainly heading in one direction (ie down!).

Would he/they be paying you rent if you did buy it? Bit confused about who'd be paying for the rent on a rental, or on something you might buy to let.

If you want to do it, fine, but don't do it as an 'investment'.

Jx

k4kate

Hi Jo, we're not doing it as an investment as such. We're doing it to save paying out money on a monthly basis.

£350 a month is the average rental in the area without bills included. We could be paying £250 to £300 a month on a mortgage and even if we only charge his 3 friends £200 a month we'd be covering the mortgage by 200% and wouldn't have to pay rent for our son.

Obviously we wouldn't really be making lots of money as there would be service charges, maintenance etc to take into account.

Our only worry is being able to sell the property in 3 years time but we could always continue to rent it out...

scottishblondie

By "dependant mortgage" do you mean your son would take out a mortgage in his name with you standing as guarantors? In which case the property would be his, he would then be a "residential LL", and so yes the other students would be lodgers not tenants. It's a different thing altogether, as the same rules don't apply. Also the property would legally belong to your son - I know you don't think it could happen but families fall out and you need to think about what might happen then. Finally on this point, once his name has been on deeds he wouldn't be eligible to take up any offers for first time buyers in the future if he wanted to buy a property himself.

Would you keep the property after he finishes uni? 3/4 years isn't really long enough to recoup all the initial costs and interest, especially if the property loses value, so you really need to consider how much you could live with losing when doing this.

I'm not saying it's an entirely bad idea - my own parents bought a flat for me to live in when I started uni in 2003 and I'm very grateful to them for helping me out. I got a guarantor mortgage, and the property is in my name. I contributed to the deposit, paid off chunks of the mortgage with my own money, and bought "shares" of the property from them when I could. We had a legal document drawn up to ensure that the money they had put into the property was protected in case anything went wrong.

I now fully own the property myself as far as my parents are concerned, and I've been living here for almost 8 years. If I were to sell it now I think I would make a very small profit, as flats in my building are selling for around £10k more now than we paid.

There is a lot more to consider than just the feeling of "throwing money away" in rent, so proceed with caution!!

princeofpounds

Stamp duty can cost more than many months rent alone... Add in sol fees, mortgage arrangement fees... Add in any potential decline in house prices (current year-on-year readings are negative)... Add in EA fees on disposal... Add in any necesary maintenance... Add in interest cost (remember, a mortgage is largely just renting the money from the bank)...

Can you perhaps outline the budget you are willing to spend, the rental cost you would be saving for your son, the rental income you hope to be getting, parameters of a likely mortgage deal? Would be easier to walk you through some figures to illustrate what you are really getting yourself into.

Dependent mortgage - basics are property is owned by your son but you have financial liability for it. If he or his mates don't pay, you will have to. If house goes into negative equity, you will have to bridge that gap to dispose of it as I assume your son won't. If in some weird extreme scenario something goes wrong your current home will be at risk too if necessary.

princeofpounds

£350 a month is the average rental in the area without bills included. We could be paying £250 to £300 a month on a mortgage

So the mortgage for a house with four bedrooms is the same price as the rent for a single room? Are you... sure?

split_second

could be.......

my mortgage is £380 on a 3 bedroom house and not exactly a small one either, depends where in the country it is, a high concentration of students will bring prices plummeting

dopester

scottishblondie wrote: »

I'm not saying it's an entirely bad idea - my own parents bought a flat for me to live in when I started uni in 2003

Past performance is not necessarily indicative of future results.

You bought in 2003 and have cushion of quite a lot of HPI+ years.

Now we're in a position where there are upto £9K a year fees for University students... causing more strain on family/individual finances + then finding rent to pay of recent years?

Stories coming out now of fears for wider economy with students making up 10% of localised economy.

http://www.express.co.uk/posts/view/241363/University-ghost-towns-fear-as-tuition-fees-riseUniversity-ghost-towns-fear-as-tuition-fees-rise#ixzz1Jrn10MP3

What area or which university? In one of the areas where the university itself is under threat of closure/bankruptcy? You reckon it would be smart to buy in those areas at current prices? Prices can fall, and so can market rents. That wisdom is free education I give to you.

http://www.bbc.co.uk/news/education-12636185

ladymarmalade1970

I know someone who did a similar thing in that they brought a house and put it in their sons name when he was at Uni. Not sure of the in's and out's of it as it was some time ago but it definitely made sense at the time. The son had a couple of mates living there that he charged rent to.
I would much rather buy somewhere than pay money for rent. If it's close to a Uni you will always be able to rent it out. When my kids go to Uni i will probably do this for them.

dorset_nurse

Don't forget you or him may have to pay tax on any profit.

ladymarmalade1970

dorset_nurse wrote: »

Don't forget you or him may have to pay tax on any profit.

Of course but paying even 40% tax on profit is better than giving all your money to someone else and having nothing to show for it at the end.
Should add if he is a student he won't be earning much anyway and with everything you can offset, the tax should be minimal.