advice re buy to rent for son and partner

chocomonsta

hi all

my background is my house was bought outright, so no mortgage, I work FT, have no debts, I am a frugal, I am 49. I have approx £50,000 savings in ISA, and bank accounts. I have a pension. I love saving money, I think it is my hobby!

I am considering buying a house to rent to my son and partner. I dont want to spend more than 80k. They will rent it from me for approx £550 a month, they are in rented accom at moment and have been for 2 years. They dont like where they live, issues with neighbours, terrible parking, they have 2 cats which I am pleased to say they are v responsible for and will not give up.

I am not sure how I go about this. I have phoned estate agents wanting to view properties and they say I cant view until i have mortgage in place?

what is the wisest thing to do re buying , if i mortgage I would only be able to do so for 15 years. is it best to get a mortgage for the whole amount or should I put down 40k? Any advice would be most appreciated.

This is just to help son out for the next couple of years when financially he should be more stable and either able to buy the house from me, or leave and buy or rent his own house. He has debts of about £800 a month (into his OD) his Partner OD for about 1K, hey are both working in decent jobs their income is approx 15k +

The house wouldd be in my name only

19lottie82

Bear in mind that if they do or ever end up on benefits, they most likely wont get housing benefit, as it will be viewed as a contrived tenancy.

Plus there is the age old saying, never employ someone you cant sack, and never rent to someone you can't evict....

daisygirlmac

Essentially you're looking at a buy to let (albeit with your son as the tenant). So...weigh up the pros and cons of a buy to let without considering your son first of all.

Do you want the property to be an investment? Are you hoping it will increase in value or would you be happy to get the purchase price back given that you will have been receiving rent? If you spend £80,000 on a house it sounds like £550 a month would actually be quite a lot to expect in rent each month (at least it would in my area), is that a fair rent?

Could you charge that rent again to someone else? Are you prepared to lose money on the property and how would you feel about spending money on the property if it needs it? I personally would earmark an amount to put down and treat it as an investment property which would then be sold to fund my retirement. I believe you need at least a 15% deposit for a buy to let mortgage and ideally 25%, then you get better mortgage rates.

I would look for something that was easy to look after OR buy something that I could add value to over time (new kitchen, windows etc). I wouldn't do it if the rent coming in wouldn't cover the mortgage plus a bit...so if I had a mortgage of £400 per month I would want at least £550 in rent per month to leave a comfortable margin. I am assuming you would be able to cover a period where you wouldn't receive any rent? You only need to have a look on this forum to see tales of woe regarding non paying tenants (family and otherwise!).

ETA: the agents are saying you can't view without having a mortgage in place but this is rubbish. It's a ploy to get you to speak to their mortgage broker. Just tell them you have your mortgage arranged, further information is none of their business until you want to make an offer.

Kynthia

19lottie82 wrote: »

Bear in mind that if they do or ever end up on benefits, they most likely wont get housing benefit, as it will be viewed as a contrived tenancy.

Plus there is the age old saying, never employ someone you cant sack, and never rent to someone you can't evict....

It would only be viewed as a contrived tenancy if market rent wasn't charged previously and suddenly 'rent' was only being charged when benefits will pay it. So if they aren't on LHA now and no need to think they will be any time soon then that shouldn't be a reason to do it.

It is a far point to consider the risk in letting to someone you wouldn't evict. If for some reason they didn't/couldn't pay you would you cope financially?

You need to speak to an experienced mortgage broker (not an estate agent's one) about how to finance this the best way for your circumstances. For example you could remortgage your home and use some of your savings, or get a buy to let mortgage with 25% minimum deposit. Some BTL lenders would worry less about your age and more about the rent that could be achieved but others might not allow family lets, so a good broker would know.

Then you'll need to do some research on being a landlord as letting to family doesn't mean you can avoid all the rules. These include gas safety certificates, landlord insurance, declaring the income for tax, deposit protection, etc.

chocomonsta

19lottie82 wrote: »

Bear in mind that if they do or ever end up on benefits, they most likely wont get housing benefit, as it will be viewed as a contrived tenancy.

Plus there is the age old saying, never employ someone you cant sack, and never rent to someone you can't evict....

lol so true, he was unemployed for about 3 weeks and was unable to get benefits of any kind as his girlfriend was working albeit part time. He is in debt management and seems quite lucky in being able to walk out of one job and virtually straight in to another, but yes I am worried if they lose a job, then I would have to cover rent...not willingly though!

BigAunty

15k per annum per person is not a 'good wage' as it's only a few k above National Minimum Wage, well under national average earnings and since a lot of their net income is decimated by debt repayment, this is a concern. What if they start a family and one stays at home full time to look after the baby?

I second the previous advice for you to research thoroughly how a local council will investigate any future claim for HB and their contrived tenancy rules so that you can ensure its a commercially operated tenancy.

It's also worth understanding what the local LHA is for a 1 bedroom property as that's all a couple would get, whatever size property they live in - its worth understanding how much your rent is compared with the sum they could get in HB.

Look into things like Capital Gains Tax (see the HMRC site).

Also, legal advice in how you can protect your investment for you and your son if the couple has a relationship problem so you can minimise the risk of a future claim of interest in the property by his partner.

You do have to consider the risk of mixing business and personal relationships. We regularly see posts on this forum by friends and family whose tenancy issues cause a breakdown in their relationship, including people forced to evict their siblings, parents or children.

Given the value of the property, how realistic is it for your son to be able to buy it off you in the medium term, especially given his low wages and poor credit rating. Look at a mortgage calculator to identify how much he needs to be earning before a lender would let him take over a new mortgage (you can't just transfer your mortgage to him, he needs to show a lender he's got the income and deposit for it), either on his sole salary (in the event of a relationship breakdown) or with his partner's income, too.

I know you say he could move out and rent another property in the future and you could sell it but what if he gets quite comfy there? What if he ends up resenting the fact that he's effectively paying for an investment for you?

chocomonsta

I am hearing you .......alarms bells are ding ding dinging.

He wanted to move somewhere else but said with new deposit and credit checks it would come to about £1,500. me putting two and two together as in he is living in a rented house with minor damp and decorating issues, that the LL is not doing anything about and yet the LL is getting £550 each month. that is more than I am earning in interest. That is why I thought of buying a house and letting them rent it from me.

If they did split, would that be an issue as the house would be in my name only, his partner would not have a claim would she?

re income, 15k is basic, both can earn commission on top and overtime, and they both appear to be hardworking, just got to get them not to spend as hard! They are only early twenties.

thanks for replies so far, I appreciate common sense from people not emotionally involved!

Annisele

chocomonsta wrote: »

If they did split, would that be an issue as the house would be in my name only, his partner would not have a claim would she?

She might have a claim. I think probably not - but you should pay for legal advice to ensure that now, not five years down the line when they're splitting up.

She might be able to construct an argument that goes something like

• £550 a month is very expensive rent for this £80,000 house.
• In fact, a repayment mortgage over 25 years for £80k is less than the rent.
• Since my partner and I couldn't get a mortgage in our own names, the idea was always that partner's parent would take out a mortgage for us.
• We paid the "rent" for 25 years, and at the end the parent was going to give the house to both of us.
• So, I have a moral right to half the equity.

NB I'm not a lawyer, and I don't know whether she'd succeed with that argument - but whether she would or not, you need to take advice now.

BigAunty

chocomonsta wrote: »

If they did split, would that be an issue as the house would be in my name only, his partner would not have a claim would she?

To clarify, I meant a scenario of joint ownership with him or sole ownership if he took over the ownership completely.

I've seen posts on similar topics which discuss how to draw up a particular type of trust document where the owner can protect themselves from this type of potential dispute. Also, other advice from posters that indicate that if the owner takes money from their partner towards the house, it should be made apparent it applies to bills and is not paid directly towards mortgage or house improvement/repair costs as the latter can indicate they are forming an interest in the property and a sense of entitlement to the equity. Not sure whether or not a married/non married status makes a difference, though.

Hopefully another poster will comment on the best practice for this scenario so that should their relationship breakdown, he minimises the risk of a legal challenge.

Mojisola

Lots of advice here - https://www.advicenow.org.uk/living-together/

tiger_eyes

chocomonsta wrote: »

I am hearing you .......alarms bells are ding ding dinging.

I'm hearing dinging as well. Son and partner are both on low incomes with debt problems. My guess is that as soon as life takes a bad turn, they come to you in tears and you agree that they can skip the rent this month if they pay you back later... but that never happens... and the arrears start to snowball... and they really don't have the money... and you feel too guilty to evict them... and despite everyone's best intentions they end up living in your house rent-free while you struggle to pay the mortgage.