Question re. parents buying for children

Silverstar

Hi,

Could anyone tell me what the deal is if my parents wish to purchase a property for me to live in, which I would then purchase from them in a year or two when I'm in a position to get a mortgage?

The assumption is that I would be transferring the money to them to cover the monthly mortgage payments, and would be paying all the bills which would be in my name etc, but the mortgage and property would be in their name until I was able to purchase it from them.

Is this legal and doable? They are both approaching retirement age, but should have sizable pensions and would have little-to-no mortgage on their own home.

Would they have to get a buy-to-let mortgage for the property?

Any advice welcome.

cdavies1960

Of course it's doable and lots of people are doing it! This is what we did for our son a few years ago. We bought the house, he lives in it and he pays the bills, but we pay the mortgage. As long as your not paying your parents rent (in which case you will need a buy-to-let mortgage) then everything is fine.

Best of luck

Silverstar

What would be the difference between paying rent to my parents, and transferring the money monthly to cover the mortgage? Does there need to be a tenancy agreement in place for it to officially count as 'rent'?

cdavies1960

I guess its one of those million dollar questions in terms of how its applied on paper. Just check the small print with the mortgage provider as I guess each provider will word it slightly different.

cdavies1960

I should also point out that if its a logic amount. i.e 50% of the mortgage (because your going 50/50 with your parents on it) or 100% of the mortgage (because your family trust you etc to pay) then its fine.

As long as you can show that on paper, no problem.

Its when on paper 125% or 200% of the monthly mortgage value starts appearing. Realistically though i don't think you will ever have any problems.

Silverstar

Thanks, I guess talking to the mortgage provider is the best step.

sandsni

If you are paying your parents so they can cover the mortgage, then it's effectively rent. Otherwise it could be considered mortgage fraud. Your parents would then have to declare it as income to HMRC (only the interest part of the mortgage is tax-deductable). Do you know exactly when you are likely to be able to buy it from them? What will happen to the property if you are never in a position to get a mortgage? If the property is still in your parents' names when they retire it will be considered "capital" when it comes to benefit entitlements etc.

Silverstar

It would likely be in a year or two, probably the lower end, as the only problem I'm having currently with getting a mortgage is overdraft issues, which would be sorted out by then, and I would just be waiting for searches to drop off my credit report. The perfect property is for sale now, though, and if I wait, I'd lose it, so this is one of the various scenarios my parents and I are considering.

My stepfather retires at the end of the year, which I guess might make things difficult, then.

Fire_Fox

Silverstar wrote: »

Hi,

Could anyone tell me what the deal is if my parents wish to purchase a property for me to live in, which I would then purchase from them in a year or two when I'm in a position to get a mortgage?

The assumption is that I would be transferring the money to them to cover the monthly mortgage payments, and would be paying all the bills which would be in my name etc, but the mortgage and property would be in their name until I was able to purchase it from them.

Is this legal and doable? They are both approaching retirement age, but should have sizable pensions and would have little-to-no mortgage on their own home.

Would they have to get a buy-to-let mortgage for the property?

Any advice welcome.

Loads of threads on this if you run an advanced search. Very few, if any, lenders will allow BTL rented from family. Paying anything directly to your parents or on their behalf will count as a rent/ tenant/ landlord situation, if there is no rent why would the lender give them a BTL mortgage anyway? As Sandsni says any little white lies could count as mortgage fraud, don't go there.

Also consider what happens if your circumstances change and you cannot work from illness, injury, redundancy, unplanned difficult pregnancy. You would struggle to get housing benefit on a property purchased to let to you, it can be deemed a contributed tenancy by the council. Living alone you would not get more than the one bed rate anyway so probably not the whole mortgage on a house.

Quite honesty if you are not in a position to buy you are not in a position to own, don't underestimate the costs and risks of home ownership. These days you need a lot of savings behind you - 10% deposit, mortgage arrangement fees, legals, survey, three months mortgage payments in case the worst happens, decorating and furniture, general contingency/ rainy day. The perfect house will come along again, there are many perfect houses out there.

Slinky

I'm wondering if your parents pay the mortgage, and you save the money you would have been paying them, living there rent free, then buy the house from them at purchase price+the saved up rent, then surely there would be no income tax on rent to pay? OK so there would possibly by CGT to pay, but there's an annual tax-free allowance on that which could be utilised (two lots if the house is jointly owned by your parents).

Is that an option? Could be difficult getting the mortgage though.....

Yorkie1

1. If your parents need a mortgage to buy it, it's probably a non-starter as explained above, because BTL to family members are rare as hen's teeth.

2. If no mortgage is needed, then it's a possibility.

3. If you pay them anything while living there (i.e. as opposed to simply covering your own bills) then they are treated as LLs. This means they are bound by all the legal duties and responsibilities imposed on any LL e.g. gas safety certificate, right to quiet enjoyment. They must also declare all income from you. Are they ready to become LLs?

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