help with paying off mortgage

bazzarob_2

H i- I'd usually ask a relative who is a solicitor but I don't want to cause any family upsets. What would you advise on the below:
we are moving abroad and are planning to rent out our house, a relative of mine has offered to pay off our mortgage and we are negotiating what their side of the bargain will be. Over and above the return of their share when the house is sold, what should we offer? Obviously we will be getting an income whilst the house is being rented, so should we offer to give them a monthly 'interest' payment, for essentially being a bank?
Help, I'm completely at sea....
Are there other implications of having a share of the property in this way? Do they need to then go on the deeds of the house?

Pixie5740

It depends how you set this up. Your relative could give you a private mortgage where you agree to repay £X for Y years and a rate of Z% whilst your relative puts a charge on the property to be removed once the loan has been repaid. Any interest charged will be subject to income tax.

Alternatively you could jointly own the property with your relative but that could get messy in terms of Capital Gains Tax and rental income.

Wouldn't it be simpler just to continue with the mortgage you already have instead of mixing family and money?

steve2005

At risk of making it sound too easy, perhaps you could just give them a % off the rent equal to what the % of mortgage they paid off.

ie, if house cost £100,000 and mortgage was £25,000, then 25% of the rental income goes to them.

bazzarob_2

Thanks both, yep Steve we were thinking of that! We would obv have to look into all implications (or tax etc). The reason we are so keen to do this is that we will be out of the country for work and want to have the rental as income, not going towards mortgage repayments. We also have a fixed rate which ends while we are away and so we just thought we'd see what was possible. Also, our relatives have the cash and want to invest... We will incur a fee with the early repayment, but think it's worth it and can pay that back in a matter of months from the rental payments. Gives us a breather if we also don't get tenants for any period...

Guest101

Will you actually have much of an income once you rent it out?


What's the market like?


Have you (or your relative) ever been a LL?

getmore4less

it may be better to just pay the mortgage till the fixed rate is up then have them pay it off.

The simple starting point is are they buying part of the house or not.

If they are then they get that share of the rent after costs.

if not an equity share then it is just a debt and you need to agree terms.

You may have an added complication if they will be managing on your behalf.


if they buy their share at/close to the point of letting then the CGT calcs are relatively simple

bazzarob_2

guest - don't know what an LL is
getmore - as we are moving abroad we thought best to do all the legal before we go, ie before the fixed rate is up. The property will be managed by an agent with all the appropriate checks.
We are really only considering this option to limit our debt exposure while we are away. the relatives can well afford it and were considering buying another property. This won't be as beneficial for them, but they are prepared to help to see us out.

giraffe69

LL is landlord

getmore4less

What's your yield going to be after agents fees.

Agents don't always solve your potential problems many just pass the problem back to the LL or charge more for fixing stuff.

If the ERC is a lot then that will just eat into your first N months income when there is an easy way round it.

I can see the point of keeping a foot in housing in te UK for when you come back.

G_M

* New landlords: advice, information & links

* Letting agents: how should a landlord select or sack?

bazzarob_2

Thanks. Relative is currently a landlord
Yield is decent.
We've done those sums and read all the advice to new landlords, this part isn't really my concern (or the investor's). I was just concerned about legal implications, what we do (ie is it a 'gift'?) and whether I should give them 'interest' monthly on top of the money back when we return to uk and sell. It obviously gives us more flexibility so we are keen on this option