Renting to a family member

MyCashTimeMMT

Good evening

For one reason or another my parents have found themselves in their mid sixties having had to sell their house and rent it back. My Dad still works full time to meet the rental and although they could find somewhere cheaper, they have lived in that house for over 35 years and understandably have a sense of security there.

A bungalow has come onto the market in our street which would suit them perfectly and me and my husband are confident that we could get a mortgage on it and they could rent it from us at a rental that covers the mortgage and no higher.

We all agree that this is a great idea all round but it would appear to not be that easy after making some initial phonecalls.

I am therefore just after some advice as to whether anyone has done this before for a parent or probably more likely, a son or daughter.

In brief:

Mum and Dad pay a reasonably high deposit - say £25-30k which leaves them a few grand in the bank

We get the mortgage and Mum and Dad pay rental to cover the cost

Buy to let doesn't seem to be the option as you can't let to family apparently and we can't just get a second mortgage (family home still mortgaged) for a house we don't live in.

Me and my husband will go and see a mortgage broker but were just after a few thoughts over the weekend.

I do understand terms and conditions with mortgages and that the lender has to protect themselves but we are just trying to be nice, we don't want to make any money out of it - what's wrong with helping out the people who brought you up!!

G_M

MyCashTimeMMT wrote: »

In brief:

Mum and Dad pay a reasonably high deposit - say £25-30k which leaves them a few grand in the bank

We get the mortgage and Mum and Dad pay rental to cover the cost

I'm sure you can find a way to do this, but you need to be clear what you are doing.

Who will own the property? I mean whose name on the Title deed? If the mortgage is in your name, then the property must be in your name. And if mum/dad pay rent, then you are a landlord. It is renting. You will need a BTL mortgage or Consent To Let from your mortgage lender.

Other issues around renting? Income tax? Legal obligations? etc

Read here.

Bear in mind you would also be receiving a gift of £30K from them (as the house is in your name), which would be liable to Inheritance Tax in the event of their dying within 7 years.

If mum/dad are paying the £30K deposit, maybe they should own the property? And have the mortgage in their name? And live in their own house? There would be nothing to stop you paying the mortgage monthly for mum and dad. However, getting a mortgage might be hard for them, either due to age or income. You could act as guarantors on the income front, but age..... see a broker!

Oldernotwiser

Would they expect to be claiming Housing Benefit to pay the rent at some point?

MyCashTimeMMT

Hi, thanks for the comments.

Getting a mortgage themselves would be impossible I would have thought when they are mid sixties and I guess it probably is a complicated world when you mention the word tax too!

With regards to HB, I would have thought they may need to at some point in the future although it would be a last resort as they have never claimed for anything and won't like the idea at all. I know there is a problem with paying HB to people who live in a family members home but am hoping that if they have paid rent for a considerable amount of time we can prove that is a genuine situation and not a scam.

My dad will continue to work for as long as he can though - at present he enjoys work as it keeps him fit and active - and then they will still have some money in the bank.

There is no easy way out of their situation and its just something that seems to suit everyone.

We will go and see someone face to face to get all the facts but any background I can get is helpful so we don't appear completely clueless!

pingua

I know enough people who have had their Dads buy them a house and they then rent them back off their Dads. They claim housing benefit.

So surely this is the same thing? And if so well it must be able to be done.?

tbs624

pingua wrote: »

I know enough people who have had their Dads buy them a house and they then rent them back off their Dads. They claim housing benefit.

So surely this is the same thing? And if so well it must be able to be done.?

It can be done but not if the LHA officers view the arrangement to be a "contrived tenancy". Where a family member has previously been prepared to let FOC or at a greatly reduced rent you would need to be able to show that a subsequent claim for LHA didnt equate to an attempt to "cash in" on LHA payments

One of the problem is that the OP says

MyCashTimeMMT wrote: »

....me and my husband are confident that we could get a mortgage on it and they could rent it from us at a rental that covers the mortgage and no higher.

which possibly suggests a let at under the market rate

Edit: also , just re-reading the OP, which states that the parents would be putting down a hefty deposit on the property so would clearly have some personal stake in the ownership of the property.