BTL for parents

Hudson1984

Hi all, i'm weighing up some options and after a little advice.

I'll be buying my first house at the start of next year and am buying well within my means. It enables me to save a considerable amount each month.

With this in mind i'm reserching buying a BTL as well as making overpayments to my own mortgage. AND with this in mind i'm looking to let to my parents who currently rent and could do with this being reduced, they've always been there for me and i'd like to help them out and tie it all together in my plans.

My question is, are there any differences in applying for a mortgage when renting to relatives? reduced deposit requirment for example? I could come up with 10% by the end of next year and would love to get them in ASAP so they can have a bit more cash left over each month (as i'll not be charging them a huge amount in rent - around £200 a month less than they currently pay)

if I have to save 30% it's not a huge issue just curious if there's anything I can do to move things along that little bit quicker

p00hsticks

I'm no expert but I can't see why BTL lenders would offer any financial incentives for you to rent to relatives. In fact, I would imagine it is something that they would possibly discourage and see as more risky than having a non-related tenant in the property. After all, if your parents decided that they were no longer going to pay you rent, would you really be prepared to take them to court to evict them in the way you would any other tenant ? And if for any reason your parents moved out / died etc, would this then mean you are then breaking the terms of the mortgage ?


Are you saying that you are going to charge your parents less than the going market rate for the property ? It;'s my understanding that the amount you can borrow under a BTL mortgage is calculated on the rental income, so this means you would be able to borrow less, not more.

Hudson1984

p00hsticks wrote: »

Are you saying that you are going to charge your parents less than the going market rate for the property ? It;'s my understanding that the amount you can borrow under a BTL mortgage is calculated on the rental income, so this means you would be able to borrow less, not more.

I can afford the mortgage on the second property with no rental income so if they did fall on hard times I wouldn't be looking to take them to court no.

To be honest my parents have supported me my whole life - well until I could support myself anyway, and now i'm in a position where I want to support them and let them have the relaxed retirement that they deserve.

So yes I would be renting to them at below the going market rate, but whilst this would affect the amount I could borrow, that amount should still fall into affordable limits (houses are quite cheap round here)

So with your post in mind I imagine no one is going to look too highly on 10% deposit with family in mind - I guess even at 30% they might be worried of the risk.

food for thought so far!!

holly_hobby

As the property will be more than 40% occupied by family, you will need to source a regulated buy to let mge and lender.

Regulated BTLs are assessed under 2nd property regs, where affordability is based on your income not rental receipts (as with a traditional unregulated BTL).

A whole of market borker will assist in sourcing suitable lenders.

Hope this helps

Holly

Hudson1984

holly_hobby wrote: »

As the property will be more than 40% occupied by family, you will need to source a regulated buy to let mge and lender.

Regulated BTLs are assessed under 2nd property regs, where affordability is based on your income not rental receipts (as with a traditional unregulated BTL).

A whole of market borker will assist in sourcing suitable lenders.

Hope this helps

Holly

If I went for a joint mortgage with them would this change? i.e a normal joint application? I would have a residential mortgage in my name already for my main resisdence though.. So would I need a BTL for 45% of the value and they need residential for the other 45% I could then pay my 50% share of quickly and buy them out after that. I then have no income from them for taxation purposes as they will be paying for the 50% share and not paying anything to me which would bring their costs down I would have my investment with no risk of hardship (yep I'd still take their risk should the worst happen)

is this an option?

holly_hobby

You can't mix mortgages.

So you either all go for a joint residential - term limited to the oldest parent reaching 75 yrs old (with all but one or 2 lenders).

Or

You go for a regulated btl mge in YOUR sole name.

Both arrangements are based on income assessment.

Hope this helps

H x

Hudson1984

holly_hobby wrote: »

You can't mix mortgages.

So you either all go for a joint residential - term limited to the oldest parent reaching 75 yrs old (with all but one or 2 lenders).

Or

You go for a regulated btl mge in YOUR sole name.

Both arrangements are based on income assessment.

Hope this helps

H x

it most certainly does help. I'm guessing with option 1 being as i'd already have a residential mortgage I couldn't do this? income assessment isn't the issue, and luckily neither is the 75 yrs old age limit it's more the time taken to get deposit together if it needs to be 30% and solely in my name. Not a deal breaker issue but obviously if I were missing a trick to get that down to 2 years I'd like to explore

holly_hobby

You can pch a 2nd property (wout going down a regualted BTL route, if offsetting rental income against mge interest isn't necessary), if your income covers the new mge and your existing financial commitments.

2nd property ltvs are typically capped at circa 75% ltv, but Nationwide BS do offer 85% max ltv - and a max redemption age of 75 yrs (so your max term will be restricted by that if Mum & Dad are to be party to the mge).

Hope this helps

Holly

Hudson1984

Brilliant

nope my parents would only be party to the mortgage if the deposit situation was looking to be 30% but if I could get a 2nd property mortgage with 85% LTV then there is no need for them to be on the document which removes the 75 yrs old situation cropping up.

thanks for all the help, really does make things much simpler to plan.

kingstreet

If you want to go the second property route with a lender like Nationwide, you'll need 15% deposit but will also need sufficient personal income to cover your existing mortgage and the new one. They will not take into account any rental income, it will be a purely residential transaction.

http://www.nationwide-intermediary.co.uk/calculators/aff_calc

Use this and see if it fits.

You either go residential and use personal income, or you go BTL with a 25% deposit and the potential rental income of the property then has to be 125% of the monthly mortgage interest, assuming around 6%pa interest rate.

holly_hobby

As already discussed, a regulated BTL is ordinarilly assessed under 2nd property regs, and as such affordability is also based on earned income (and existing commitments), just as it will be if you go the straight residential route - so if you're struggling on affordability you'll find it will affect both type of arrangement, so you may have to tinker a bit to make the figs fit.

Hope this helps .... good luck !

H x