Daughter Buying Me A House: Pitfalls? Advice?

WoodruffsDad

My wife and I live in rented property which we will soon have to vacate. We are too old to get a mortgage in our own right so my daughter (who will be a first time buyer) has volunteered to buy a small property in her own name around the £100k mark providing I pay the deposit and the monthly mortgage repayments. I can easily afford to do this and I would "gift" the deposit to her just as that nice Mr. Cameron has urged us parents to do!.

My question is, in order to avoid any future problems, should my daughter take out a buy-to-let mortgage and draw up a tenancy agreement with my wife and I or is there a better way?

I assume that my daughter will be taxed on the "rent" I will pay but will get tax relief on the mortgage interest. Will the two wipe each other out?

Is buy-to-let and tenancy agreement the best way to go? I need to be sure that we're safe in case of any future health problems as the years go by!

19lottie82

Effectively your daughter would be a landlord you would be her tennent. She would need a BTL mortgage, which requires a 25% deposit.

Also, be aware that if you ever have to apply for housing benefit then it is likely to be rejected, as your potential arrangement could be viewed as a "contrived tenancy".

Then there are the pitfalls that could occur, should you and your daughter ever fall out.

McKneff

How old are you both, Ive known people actually get a mortgage in their 60s.

WoodruffsDad

McKneff wrote: »

How old are you both, Ive known people actually get a mortgage in their 60s.

I shall be 70 next May and my wife will be 64 next March.

Unfortunately I also have a poor credit rating due to some bad decisions in the past but I'm financially O.K. now.

I think, though, that getting a mortgage in our own right is not possible.

00ec25

tax

deposit - assuming that you and your wife's total estate is less then 650,000 then gifting the deposit to your daughter has not tax implications at all. If your estate is above that limit then the gift would be exposed to IHT for the next 7 years. If you die before then it would be included in your estate and the estate would be liable to IHT tax assuming the estate is >650k

rent

as you say daughter has to declare this income and will be taxed on her net profit after deducting expenses. She may or may not therefore actailly have to pay any tax but declare it she must.
She can only claim the interest she pays on the moprtgage , so if its a repayment mortgage she wil not be able to claim the full amount against her tax. However, as she will be your LL there are a range of other requirements she must legally fulfil allof which have a claimable cost - see GM's post covering guide to new LL

Annisele

I think a mortgage lender might have concerns about a gift that comes from the people who'll be living in the house. Essentially the lender will want to be sure it can repossess if it needs to, and I'm not sure whether your gift will cause complications. But if it does, someone will be along to say so shortly.

You also might want to think about what would happen in the event of death/divorce/disease/debt - both yours and your daughters. For example - what if she became so ill she couldn't work, but couldn't claim means tested benefits because she owns a house she's not living in? What if she gets married and then divorced, and has to sell the house as part of a divorce settlement? What if she gets into other financial difficulties? Etc etc.

kingstreet

Some lenders won't accept it. Abbey/Santander for example;-

We will not accept a gifted deposit if:

provided by the vendor (unless an acceptable new build
incentive from the builder/developer);

protected by a Deed of Trust (or similar);

the person providing it will be living in the property, but
is not named on the mortgage; or

there is a beneficial/equitable ownership/interest in
the property.

WoodruffsDad

kingstreet wrote: »

Some lenders won't accept it. Abbey/Santander for example;-

But what if I just gave my daughter cash to cover the deposit and she paid it direct to the lender?

maninthestreet

Your daughter would have to declare the source for the deposit to the lender, via the solicitor handling the conveyancing (who also acts for the lender).

WoodruffsDad

maninthestreet wrote: »

Your daughter would have to declare the source for the deposit to the lender, via the solicitor handling the conveyancing (who also acts for the lender).

It would be a "gift" from me. What's wrong with that? If that's a problem she could say "savings".

Isn't the government encouraging parents to finance their children's first venture on to the property ladder?

pmlindyloo

WoodruffsDad wrote: »

It would be a "gift" from me. What's wrong with that? If that's a problem she could say "savings".

Isn't the government encouraging parents to finance their children's first venture on to the property ladder?

There is absolutely nothing wrong with gifting a deposit to your daughter.

However, the majority of mortgage lenders need proof as to where the deposit comes from (usually for money laundering purposes) and also to see that it has not been taken out via a credit card/loan etc and has to be paid back, possibly creating financial problems in the future for the 'borrower'.

In your case they need to know that the deposit will not have to be paid back. If it did have to be paid back then it may create a problem as regards f your daughter's potential ability to service the mortgage.

Your financial adviser will advise you about this and should support you with any problems if they arise.

In most cases a letter stipulating that it is a gift and evidence of the money (through a bank statement for example) is all that is needed. Something like this, maybe: http://www.slough-mortgage.co.uk/examplegifteddepositletter.html

Please do not be put off by some of the answers on here. You asked for potential pitfalls and this forum always makes sure that you are aware of all possible scenarios

The lenders just need to be assured that they will be able to get their money back and this means that you may have to jump through a few hoops.

Good luck with it all.