Provide sister a mortgage .... advice please.

lwarrine

My sister/brother in law/nephews live in a private rented house, with the constant threat of rent increases & having to move house I decided to see if I could do anything to help. Sadly they are not in a position to obtain a mortgage with high street lenders at present.

My initial thought was to buy a house & rent it to them, where I could hopefully provide security & keep the rent to a sensible level.....

Then I thought instead of that, how about instead of them paying me 'rent' I treat their payments as 'mortgage payments'.
So over say the next 5 years they would pay £x off the 'mortgage' in capital and potentially the value of the house will increase by £y. So they would then have some equity of £x+y .... and with this they may potentially be able to get a mortgage with a high street lender & effectively pay me off.
(Note: The house I purchase will be a 'cash' purchase, the payments I receive I will then use to pay the mortgage on my house .... I was originally planning to just pay my mortgage off ... but helping my sister out is more important to me)

> Does this sound like a plausible / sensible plan ?

> Would I need to register them on the deeds / title at the time of purchase or could I transfer later .... or would this mean potentially paying SLDT twice !

Thanks.

amnblog

sounds like a matter for you to whether it is a sensible plan.

any transfer of equity could incur SDLT cost, depending on the figures involved.

get some independent legal advice before you even consider this

mrginge

You can call it what you want, you'll still be a landlord and have to declare the income to hmrc.

Less complexity in this as you're not using a mortgage, but the house remains yours (as does the CGT liability) until they can afford to buy it off you. You can then sell it to them for whatever you want.

whitewing

I always think that if someone is not in a position to get a mortgage themselves, there is a sensible reason for that.

Why don't you just rent them the house at a great rental price, that allows them to save up and sort out their own borrowing later. That way it is still yours, for example, if the marriage broke up so that you could put your sister/nephew first (I wouldn't tell them this). They still have the benefit of not having to move etc. Or even set aside their rent to give them it back at a later date, if you must. I would not treat it as a mortgage.

gazfocus

I would echo what others have said, in that the best option would be to buy the house with your cash, rent the house to your sister for below the market rent (i.e. the lowest you could afford), then with the money your sister is saving in rent, she can put this into a savings account to save for her own deposit and eventually either buy your house or buy another house to her liking.

Either way, you still get your money back and she has an incredibly generous sibling.

Kynthia

You could lend them the money to buy the house in their name and then make monthly repayments to you, but this would be risky. Otherwise if they make 'any' payments to you while living in a property that you own, they would be considered rental income for tax purposes and you'll have to declare it and abide by other letting laws and regulations. That's not to say it's not worth doing, just something to factor into your financial calculations.

Yorkie1

If the house remains in your name and you receive any money from them in cash or benefits in kind, then you will be a landlord with ALL the duties and responsibilities that brings, including gas safety certificate and income tax.

Would your sister need to claim housing benefit at all? In this case, unless you are charging a market rent and have a formal tenancy agreement demonstrating this, she is highly unlikely to be awarded the HB because this will be what is called a contrived tenancy.

I agree with others that transferring the property to their names is a poor idea unless you want it to be an outright gift to them at that point.

lwarrine

Thanks for the replies, a few good points raised ... gives me something to ponder on.

MEM62

lwarrine wrote: »

Thanks for the replies, a few good points raised ... gives me something to ponder on.

Have you considered that any rent you collect from your sister will be subject to income tax? In fact, if the house is mortgage-free then all of the rent will be subject to income tax. If the house that you rent to her family had a mortgage on it you could at least claim tax relief against the mortgage interest. The possible downside to that though is that the mortgage would be BTL.

This needs careful consideration and professional advice.

Good on you for wishing to help out your family! I hope you can find a way of making it work out.

ValHaller

Kynthia wrote: »

You could lend them the money to buy the house in their name and then make monthly repayments to you, but this would be risky. Otherwise if they make 'any' payments to you while living in a property that you own, they would be considered rental income for tax purposes and you'll have to declare it and abide by other letting laws and regulations. That's not to say it's not worth doing, just something to factor into your financial calculations.

A private mortgage with OP lending to sister will carry very little more risk than renting to her - it will give a right to repossess. Plus it would not be letting the property.

Kynthia

ValHaller wrote: »

A private mortgage with OP lending to sister will carry very little more risk than renting to her - it will give a right to repossess. Plus it would not be letting the property.

I know nothing about private mortgages and the ability to reposses even though the property is 'owned' by the borrower, so that's very interesting to know and could be useful to the OP. I assume there's no tax to pay if the mortgage/loan is interest free? Which in that case makes it a much more tax efficient option than keeping the property in the OP's own name.