unexpected house purchase

trailingspouse

Daughter is renting a small house, has been there a good three or four years. Landlord now wishes to sell (he's fairly advanced in years, so not a huge surprise), and has served her with 2 months' notice.

Now, he has said that if she could raise a mortgage he would be happy to sell to her. This isn't possible (she's a student), but we would be open to the idea of buying it so that she could continue to live there. She would pay us rent, and when she eventually moved on we would either sell it or perhaps continue to rent it out (it's handy for the university).

What questions do we need to be asking? Would we have to get a buy-to-let mortgage, bearing in mind we're renting to family? In general is it a good idea, or should we just let her find somewhere else to rent - in other words, apart from making our daughter's life a little easier, what are the advantages/disadvantages to us of owning a second property? Would appreciate your thoughts.

PlymouthMaid

I think there may be various pitfalls but other folk will advise. The one that comes to mind for me is that if your daughter needed to have help via benefits in the future to pay her rent there could be problems as renting from relatives is not generally covered by housing benefit

Annisele

trailingspouse wrote: »

Would we have to get a buy-to-let mortgage, bearing in mind we're renting to family?

Yes - but because she's a (close) family member it would be a regulated buy-to-let mortgage. Some lenders offer BTL mortgages but not regulated ones. That's not a major problem, just watch out that some of the BTL deals advertised might not be available to you.

In general is it a good idea, or should we just let her find somewhere else to rent - in other words, apart from making our daughter's life a little easier, what are the advantages/disadvantages to us of owning a second property? Would appreciate your thoughts.

Well, if the landlord wasn't selling the property would you have considered becoming a BTL landlord? If not, think about why not - and about whether those reasons have disappeared.

I'd also wonder about whether the specific house your daughter is living in now is the best for you, in terms of yield and many other things. You might be better off buying some other house.

Being a landlord means complying with a huge raft of legislation. G_M has a mammoth post that gives a good overview.

Fredula

If you're planning on letting it to more than 1 student once your daughter has moved out, I believe there are quite a few regulations you must adhere to (moreso than if you were just renting to say a family). I might be wrong on this, but I watch a lot of homes under the hammer - and people who buy to let to uni students often overlook this, making their expenses higher or they end up letting to families instead of students.

Good on you though. Could you not buy it, charge her the rent as her 'mortgage' and then when she comes to move out, sell it and give her a share of what she's paid so that she has a deposit for somewhere of her own?

ging84

when i bought my first flat i had an issue getting a mortgage, so my parents re-mortgaged their house and bought the flat for me with cash
if you have sufficient equity this would likely be the best solution, my parent put the flat in my name, but you could just as easily keep it in your name
eventually if you do want to go into renting it out when your daughter want to move, you can then take out a btl mortgage on the property to offset against tax

trailingspouse

Many thanks for the thoughts so far.

As a Masters student, she doesn't get much in the way of benefits, but that is a point worth bearing in mind for the future (obviously she is working towards not needing any benefits of any kind, but who knows how things will turn out in the future).

I didn't know there was more than one type of BTL. I've e-mailed our mortgage adviser, hopefully he'll get back to me tomorrow.

We have thought about entering the BTL market in the past - in fact we'd just heard that our neighbours are putting their house on the market, and had wondered about buying that and renting it out. So the whole concept isn't too crazy for us.

I agree with you about 'if you were going to buy a house to let out, would you buy this one' - this is exactly the way I approach opportunities normally. On the plus side, it's a nice little house, and she's made it into a lovely home. We know it well, and there doesn't seem to be much wrong with it. It's in a nice area with good neighbours. On the minus side, I have reservations about mixing business with family (and we have other children - we certainly couldn't afford to do this for all of them, so is it fair if we do it for one?). Lots to think about.

traineepensioner

Don't forget the possible Capital Gains Tax due when you come to sell the house

trailingspouse

OK, we've now heard back from our mortgage adviser - looks like we'll need a straightforward BTL mortgage, with a 25% deposit. If it's on the market for +/- £100,000 we could manage a £25,000 deposit (and it's a VERY small house - I'm sure I've had bigger living rooms!!)

Yes, I know we will end up having to pay CGT - that's something else I'll have to research.

Just need to find out how much he's wanting for it before we can make any final decisions.

egoode

trailingspouse wrote: »

..... I have reservations about mixing business with family (and we have other children - we certainly couldn't afford to do this for all of them, so is it fair if we do it for one?). Lots to think about.

I think you definitely need to think about how your other kids are going to feel about this and how you will deal with any issues that come up while your daughter lives there.

My Dad bought a flat for my sister to live in as her and her boyfriend had moved around a lot with landlords wanting to sell and the rental market was really insane so was finding it hard to find somewhere to live. It was no surprise he did it for her as she has always been his favourite. However the things I was really upset about was he wasn't charging her market rates and the rent didn't even cover the mortgage repayments so he was subsidising her and her boyfriend's rent even though they were earning aound $80k between them (pls note this is in Australia hence the $) so could afford to pay the market rent. She even asked him to not pay rent while she was out of work for about 7 weeks.

It's now been about 4 years since he did this and he's now talking about letting her and her boyfriend buy the place from him for what's remaining on the mortgage which is about $400k. Given Sydney is going through a property boom similar to London's the property has risen massively in price and is estimated to be worth $650-700k so not only have they been not paying what they should in rent over the last 4 years but they are also gaining $250-300k in equity for nothing.

I've not been particularly happy with the arrangement when they first entered it (and they do know that). I also said they should have had a proper rental contract drawn up but they never did and as my sister and Dad have now fallen out it has been causing issues that an agreement was never drawn up.

So if you do go down this path I firmly believe you should still have a tenancy agreement with your daughter and treat her as you would any tenant with regards to the amount of rent paid and that it is paid on time.

PasturesNew

It's a bit dated (2010), but here's one sample article about what to think about and routes you might consider.
http://www.independent.co.uk/money/mortgages/a-parents-guide-to-buytolet-student-property-1992341.html

antrobus

traineepensioner wrote: »

Don't forget the possible Capital Gains Tax due when you come to sell the house

The good thing about Capital Gains Tax is that it's only due when you actually have a capital gain. Which is, generally speaking, a good thing.