Buying a 2nd home when mortgage free

carlbcfc

My mother is mortgage free, and has suggested buying a 2nd home as she has some disposable income. A relative would live in this rent free, bills excluded obviously, and in the mean time save themselves a deposit for a house.

Now when inquiring with lenders they seemed to want precise clarification on whether this was a buy to let, or 2nd home. Now, a buy to let is a profit making scheme, and a 2nd home is just that, and available to family members to share. Am I right? Could she claim this as a 2nd home, and give the use of it for free to a relative? In this case it would be an investment for later on.

If it is a buy to let, the deposit is much much higher than if it is a 2nd home.

Thnak's in advance

Werdnal

If she owns it and doesn't live there, she will need a BTL mortgage and become a LL - even if no actual rent changes hands, the legal regs and obligations of being a LL are the same.

BTL lenders are very wary of letting to relatives and would be even more suspicious if no rent was involved.

A 2nd home, is just that, a home she uses herself for holidays, work travel etc, and lives in temporarily when not using her primary residence. If the relative is using it as their main/only residence, they are not "staying there" they are "living there"! I assume they will want to register that address as their own home for banking, work, DVLA, benefits, electoral roll etc, thereby making it their home.

BTL is not always a profit making scheme - you only need to read the litany of posts here as to how it often makes a loss!

carlbcfc

Thank you. Can she justify a 2nd home 5 miles away though? It is a 2 bed, and she is currently lives in a 3 bed. Could she say it is an investment to downsize later on, which may be a possibility when my younger brother leaves home soon.

Cornucopia

5 miles away - that's likely to ring alarm bells with both the lender and HMRC.

It may be easier to raise funds on the first property, rather than the second.

Werdnal

carlbcfc wrote: »

Thank you. Can she justify a 2nd home 5 miles away though? It is a 2 bed, and she is currently lives in a 3 bed. Could she say it is an investment to downsize later on, which may be a possibility when my younger brother leaves home soon.

No, because its not her home is it? MPs fell foul of all this over their expenses claim. She cannot LIVE in 2 places at once.

Therefore the 2nd property is a BTL, regardless of what she plans to use it for in the future. She would also incur CGT if/when she sold it!

My BTL property is a 1 bed flat, and in the long term, it will probably be offered to my son as his first home (I do not have a mortgage on it), but I cannot claim it as my 2nd home if I did need to mortgage it. IMO there is no grey area here, you are trying to find a loophole where there isn't one.

Cornucopia

The "loophole" is for it actually to be a second home. A sufficient distance from the other property, where (for whatever reason) she lives for particular dates.

carlbcfc

Thanks. It amazes me how hard it can be for someone who is mortgage free, with disposable income, to buy another property. The way it looks is he will have to raise a bigger deposit and take a BTL mortgage. I don't think she had this in mind when she was offering to help someone out.

carlbcfc

So a 90% But To Let it is. Any suggestions, I am coming up 5% short on google.

silvercar

carlbcfc wrote: »

Thank you. Can she justify a 2nd home 5 miles away though? It is a 2 bed, and she is currently lives in a 3 bed. Could she say it is an investment to downsize later on, which may be a possibility when my younger brother leaves home soon.

A second home is just that, a home you buy when you already have a first home.

Separately the financing arrangements may put restrictions on its use. So a BTL mortgage could well require that it be let on a commercial basis, there may or may not be a restriction on letting it to relatives. On the other hand some lenders may be happy to give a residential mortgage on a property that will be lived in by close relatives.

A broker could advise.

The alternative is to raise funds on your first home to buy the second, the. It would be a straight forward residential mortgage and potentially lower interest rate.

Werdnal

carlbcfc wrote: »

Thanks. It amazes me how hard it can be for someone who is mortgage free, with disposable income, to buy another property. The way it looks is he will have to raise a bigger deposit and take a BTL mortgage. I don't think she had this in mind when she was offering to help someone out.

Not necessarily, as others have said, she can raise the finance by mortgaging the property she currently lives in, to release the equity to cover the cost of the new property ... if of course, she want to do this. This would be a residential mortgage, with far more options and less restrictions than a stand-alone mortgage on the BTL property.

carlbcfc

Thank you. Okay, so my mother has a long term partner, and they live in the house, it is theirs. Lets say for example that my mother moved out during some time apart/to be nearer another relative, and wanted buy buy a flat rather than rent, without the complication of selling the original house, for when they reconcile at a later date?

Would a lender accept the above circumstances?