Buying a house to let a friend live for free in

rock007

Hi,
My mate is currently splitting up with his ex and is in no position to get a mortgage as all his equity is tied up in the house and unfortunately he has to go through what looks like a long legal battle to get his money out of the house...

Being the generous chap i am ive basically said i would buy him the house he wanted, no mortgage needed, and let him live there rent free until his equity was released and he could buy the house from me at the same price i paid for it....

Now currently i rent so have no mortgage or property of my own, just how i prefer to live at the minute.

Would anyone be able to explain to me how this would work legally, especially since i dont own a property of my own? If i decided to buy a property of my own afterwards would any mortgage i needed to get be calculated differently? Even though im not charging him rent would i still need to get the certificates for electricity/ gas etc..Would i need to worry about CGT in any way? Is it just easier to let him live there and say nothing to anyone...if so how would this look me paying council tax at 2 addresses?

Id appreciate any answers as i cant seem to find anything specific for a setup like this, where i personally rent but own a property and want to let someone live there for free....

Thanks

property.advert

If you bought in your name and he wanted to buy from you then you'd be out of pocket two sets of stamp duty.

If you bought in his name you would need a first charge over the property which you would release when he paid you the money for the property.

In all cases, you run the risk of having a property or having lend out a lrge sum of money and not being able to retrieve your liquidity.

Running_Horse

If he is going to get his equity eventually, wouldn't it be better in a falling market to set him up in a rented place for a while?

jamie11

If you are buying the place for him but charging no rent at all then it will fall outside the remit of the 1985 Housing act. It will not be an AST, so that means no gas checks etc.

Is it wise? I'm not sure, I see you granting your friend the status of 'permitted occupier' with all the problems that can bring and a huge portion of your funds tied up in the house.

I think that if I were rich enough to contemplate doing something like this I would at least rent the property to the friend at a realistic rent that would make the letting subject to the landlord and tenants acts. whether he actually pays the rent or not is neither here nor there, what it would do is give you the opportunity to recover the property by legal means at some time in the future. If you do that, of course, you will have to carry out the normal landlord obligations. There might be some tax advantages in that as well, but that's not my field so I will leave that to the experts.

tyllwyd

I think you should forget about letting him live there for free, and do it properly by buying a buy to let property and charging him a low rent, so then both of you know where you stand legally. You can let him choose the property and agree between the two of you that you will sell it to him when he's in a position to do so (at the price you paid or the market value at that future time ... get that agreed at the outset! And remember capital gains tax and solicitor's bills, stamp duty etc - if you don't get all of that sorted out between you, you could end up with an unexpected bill running into thousands.) If you don't do it properly, you could end up with a massive headache in the future.

missile

I suggest you see a solicitor and/or a shrink

Yorkie1

I agree with the others' posts. Are you prepared for it to take many years for him to buy the place off you? For unforseeable reasons he may not be able to raise a mortgage to do so at all.

What would you do if your circumstances changed and you needed to sell? Would you be prepared to evict him?

Yes there will be a CGT liability when you come to sell, if the property has risen in value and it's more than the CGT annual exemption.

theartfullodger

Very generous but barking: and re your

and let him live there rent free until his equity was released

there is a very very very long history of the remaining spouse-in-the-house refusing, for years-and-years-and-years to sell and it taking decades, possibly until someone dies, to get the equity out. Is still happening to a lady acquaintance of mine who's ex-husband is stonewalling like a good 'un, and a relative who's ex-wife will I expect go to her grave before letting him have a penny.. (Don't forget liability for mortgage will remain!!)

Don't do it: Help the guy, maybe give him a normal commercial tenancy on normal terms with gas-safety cert & landlord insurance (then he might get housing benefit if he loses his job..) but not otherwise..

Oh, and be very careful about being a guarantor: That's basically a huge blank-cheque & no way of getting out of the guarantee once you've signed...

Cheers!

jojo_2012_2

I wish I had a mate like you. In fact I really like you Rock007 lets hang out :beer:

cheekychappy

Would he be squatting and be able to gain adverse possession?

jamie11

No. If he has permission to be there he cannot be a squatter.