Contrived tenancy?

StudentMum88

I have spent hours researching the topic of contrived tenancies but there is still one question I have.....

I am currently 18 weeks pregnant and a full time university student, I THINK from what I have read that I will be eligible to claim HB once the baby has been born but am still very confused as to if I am entitled to anything else.

My question in relation to the contrived tenancy however is, will I be able to claim the HB once the baby has been born if I rent from my brother and his mortgage is not buy-to-let?

This really isn't a contrived tenancy...

My brother has recently bought a 2 bedroom house that he was planning to move into and rent the spare bedrooms out to help him cover the mortgage.

I have been looking for somewhere to rent near my parents as I have recently moved home and plan to commute to university because I really feel I will need the support of my family whilst pregnant/a new mum. I am struggling to find anywhere I can afford as rents seem to be in excess of £500 for a 2 bedroom and on my student loan I really can't afford that. My brother has offered to rent his house to me, his mortgage repayments are much cheaper due to a large deposit, and I would be able to afford to live there. I have read the exceptions to renting from family members in numerous posts on this website, and others and obviously I would be paying him the rent months before receiving any housing benefit and also we would have a tenancy agreement drawn up. My brother plans to move in with one of his friends so he would not be living in the house with me and obviously I would have to pay rent as his mortgage needs paying. The only problem is that he bought the house using a first-time-buyer mortgage and I'm very worried that he will get in to a lot of trouble/the claim for housing benefit will be seen as a contrived tenancy because of this. Whilst trawling through the numerous website in the hope of finding some information I have found that many people are letting their houses whilst having residential mortgages and it is far from extraordinary however I am really worried about it.

I was advised by someone to not disclose that he was my brother, but I would rather be upfront about it from the beginning as there is nothing dodgy about the arrangement and he is simply trying to help me out.

Any advice would be greatly appreciated,
Thanks

jamie11

It is not impossible to rent from a relative, but it is usually looked at much more closely.

The tenancy would have to be on a properly commercial basis and your brother would have to be willing to evict if it became necessary, is that realistically going to be the case?

If you are going to rent the place then the mortgage should be a buy to rent type, do not believe all the stories about the banks not being interested, they are.

Why does your brother not stay in the property and take you as a lodger? It would solve a lot of the problems.

anselld

I suspect HB would also want to understand why it is not possible for you to live with parents if you are commutable distance to Uni.

tbs624

There are wider implications for both your brother and you.

For a tenancy not to be seen as "contrived" it has to be on a proper commercial footing, as Jamie11 has said. It's clearly not on a commercial basis when your brother has a residential mortgage in place, signifying an intent to be ..er.. resident himself.

You say that your brother can let to you at a lower rent than that demanded by other local LLs: again, that doesn't indicate a tenancy which is on a "commercial" basis and your brother should be aware that he would need to declare all rental income to the taxman. Moreover there are specific HMRC implications for LLs letting property out at below a market-rate rental figure.

If he wanted to let the property out then he should either have taken out a BTL product from the start or ,at the very least, be seeking Consent to Let from his Lender.

There is a much greater risk for the Lender with a property that is let out and this is reflected in the lender requirement that there should be a higher level of equity held by the buyer (which your brother may be able to meet) and the fact that a higher rate of interest is usually levied.

Properties let to students or those in receipt of HB/LHA are seen as being at the riskier end of the rentals market though and a Lender's CTL may specify that such tenancies are excluded.

Your brother would also need to undertake all the usual LL obligations on things like gas safety certs etc. His insurance cover would be invalidated f he failed to declare that the property was occupied by a tenant.

Yes, some people do let"under the radar" in the hope that their Lender will never find out - however breaching your mortgage Ts and Cs can lead to the property being repossessed and to potential difficulties with getting a mortgage in the future. There is much data sharing between various agencies and specifically on mortgage apps ( google National Hunter)

As Jamie11 has already suggested, why can't your brother live at the property, as he intended, and formally take you in as a lodger (with lodger agreement in place) and make use of the annual rent a Room Allowance?

jetplane

You cannot claim HB if the local council believes that your liability to pay rent has been created to take advantage of the HB scheme. If you can satisfy the local authority that the arrangement was not intended to exploit the HB system, you may be able to get benefit.

Your brother has bought a house and was moving in, is that right? You need to be near home and can't afford the local rents so he will move in with a friend and rent you his house, with a view to you claiming housing benefit when the baby is born, will this be at a lower market rent?

It is possible to rent from family and claim benefit, however the department will make enquiries to see if this is contrived. If a family member has a house they rent out and you need to rent a property then there is no reason why you can't, however it would need to be on the same basis that he would rent out to any other tenant.

Your brother doesn't have a propery to rent, he doesn't have a buy to let mortgage. If you do not move in he is not looking for a tenant, will he evict you if you do not get housing benefit? How do you meet the rent before you get benefit? Would you rent from your brother if you cannot get benefit?

How is this not a contrived tenancy?

StudentMum88

Thanks for your replies. I cannot stay in my home as my stepfather has told me I cannot live there once the baby is born as I currently share a room with my sister and he says there simply isn't enough room, unsurprisingly we don't get on very well, however I have been to see an adviser at a citizens advice bureau and they have already told me I will qualify for HB.

I know that there is no way I would qualify for housing benefit if I rented the room from my brother as if you live with a close relative you are not liable for any HB whatsoever. I have also been reading section 130 of the Social Security Contributions and Benefits Act
1992 and I already know that for a tenancy to be seen as commercial it does not need to be rented out at market value....

"In deciding whether or not the agreement is commercial, the local authority must look at the
whole agreement, taking into account all the circumstances. For example, they can look at
the agreement to pay rent. As long as there is a binding and legally enforceable agreement
that rent has to be paid on a regular basis, a claimant does not need to demonstrate that it
is a market rent (in other words, a rent typical of private rents locally).
The local authority should also not assume that just because a claimant is a relative of, or
has a close relationship, with their landlord, that this automatically means that the
agreement is non-commercial. For example, government documents drawn up to train Local
Authority Housing Benefit departments (there should be a link to this here, however I am not allowed to post links as a newbie)
say that it can be considered as reasonable that a landlord may want to choose to rent to
someone that they know, in order to be certain of having a good tenant.
The council should also consider that a claimant might have good cause to move into a
property, which has been rented to them by a close relative. For example, it may be to
enable a young person to leave their parental home, or to provide a more suitable home for
a person with a disability"

Before I receive HB I will be paying the rent using my student mantinence loan, as my baby is due in March I will be leaving University after the first semester and so all loan payments will stop. Obviously if I stopped paying the rent, before or after receiving my housing benefit, my brother would have no option but to
evict me as he is not in a position to allow me to live there rent free, if he was there would be no need to be wanting to claim the HB.

In regards to why this isn't a contrived tenancy, this situation has not come about so as to take advantage of HB. I will be paying rent before I am eligible to receive HB because I will have the money from my student loan for this. If I do not rent from my brother he will live there himself and take on a lodger, and section 130 clearly states that if I am that lodger then no HB will be paid and so he could not afford to take me in as a lodger. I could not rent the property from my brother if I did not receive HB as my loan will stop the end of Feb, however I could not rent from anyone if I did not receive the HB.

jetplane

Not sure why you asked for advice if you know all of this and could the CAB not have advised regards your brothers buy to let while you were there? At least you know howto look up or where to go for appeal advice should some local authority bod decide that it is contrived.

Annisele

I think it might depend on how much your brother charges compared to the market rent.

For example, if market rent is £500 per month and your brother charges you £480 because he knows you and he wants to be certain of having a good tenant, that might be OK. If he charges you £200 because that's the amount of his mortgage payment, I'm pretty certain that would not be OK.

I don't know what the implications of a below market rent are, but tbs says there are some and s/he would know - so if you and your brother are sure about this, he should investigate those.

Egg_custard_2

It does seem a little contrived because of the fact your brother is moving out of his 2 bedroomed house to stay with friends when there would be room for both of you at his house. It seems that the reason he is moving out is because you wouldn't be entitled to HB if he were still resident there. You are therefore arranging the living arrangements to try to receive HB.

I'd be surprised if they didn't have a problem with the mortgage not being a BTL product or your brother having consent to let. As someone else said, there are other issues such as invalidating the house insurance, and the correct level of tax on the rental income.

G_M

Your brother needs to read this post to understand his obligations in this arrangement. Either he's doing this informally as a favour ("contrived"), or he's becoming a landlord, with all the associated responsibilities and obligations.

You are clearly well-read on the rules, so you realise that yes, it can be done, though yes, it could be seen as contrived.

Where is the father in all this? Presumably he'll be contributing to his child's housing needs?

Wee_Willy_Harris

Ten posts before anyone (including the OP) even suggests that the father may have a part to play in his childs financial needs.

As for the issue of a contrived tenancy? Well, with the ongoing pressures to ensure that public spending is kept under tight control, I would expect that any claim that is suspected of being contrived will be thoroughly checked. I'd be surprised if the need for a B2L mortgage or consent to let isn't raised at some point. However, you seem to have all the answers already.