BTL mortgage with family member tenant on housing benefit

J_Devon

Evening all, hope you're well :beer:

I'm looking into the possibility of getting a Buy-to-Let mortgage to purchase a flat. I would then like to let the flat to my brother, who is currently receiving housing benefit.

I've read that the rental income in most cases will need to be greater than 125% of the mortgage payments. Is this correct?

I understand that this process is put under alot of scrutiny to ensure that everything is done above board. There is no hidden reason behind us wanting to do this...I will ensure that there is a tenancy agreement in place, and the rent is charged at fair market value etc....

Am I right in saying that the number of lenders willing to lend for this situation will be quite small? Any advice for going through this proces? Are there any other alternative ways of achieving the same outcome?

Any advice or experience (or decent links to further information) that anyone has would be very much appreciated and if you need any more info to offer further advice, please let me know.

Regards,
James

dimbo61

Well you need a 25% deposit and money for fees, survey, legals etc plus 3% extra stamp duty.
You need to have a business plan, local market, rental prices in the area.
Renting to family will make it even harder.
The council may consider it a contrived tenancy as your name Mr Smith will be renting to Mr Smith.
One for a broker

banks4u

Don't tell the lender that you will be letting to a brother. However as above the housing benefits may have a problem. You have to declare everything and if your brother declares you a brother it will be a no no. Unless flat is under another name.

I tried to get housing benefit for my mum and bro And I was the owner. They wouldn't have it, even though I had a tenancy. Now I sold that house they are in private accommodation on housing benefit. If I could I would buy them a flat but put it under someone else's name.

J_Devon

Thanks for the replies.

Deposit is sorted and the property will more than likely be under the Stamp Duty threshold.

I've nothing to hide, so I don't want to hide any details from the lender or the council. It seems there are ways to try and show the council that it's not a contrived tenancy...

http://england.shelter.org.uk/get_advice/housing_benefit_and_local_housing_allowance/what_is_housing_benefit/housing_benefit_if_renting_from_a_family_member

I guess the obvious thing is simply to phone the council and see what they say.

banks4u

Let us know what the council says, it will be interesting to see

frugalsmurf

It's very hard to lend to relatives if housing benefit. Especially if it's close relatives such as brother to brother as they see it that you've bought it for that purpose. Although there was a case recently about Kim Marsh (corronation street star) renting a house to her parents who then claimed housing benefit. Maybe some councils ars more lenient. But in my experience they aren't.

Kynthia

It is possible to let a property to family on housing benefit. The situation the council is trying to avoid is where family are living in property owned by family rent free or at reduced rent (or could do if they chose), but when they become entitled to benefits they put a claim in for full market rent in order to benefit from taxpayers money. You need evidence to show this isn't the case. It is easier to show it's not a contrived tenancy if you previously let the property to tenants showing it is an ongoing business for you, and not just something you are doing to get benefits. Or if you family member is already claiming LHA rather than only needing it when they live on your property.

scottishblondie

J_Devon wrote: »

Deposit is sorted and the property will more than likely be under the Stamp Duty threshold.

But will it be your only property? If you already have a home a 3% surcharge will be due even if it is below the threshold for normal stamp duty charges

Thrugelmir

J_Devon wrote: »

I've read that the rental income in most cases will need to be greater than 125% of the mortgage payments. Is this correct?

There's discussion between the FCA and lenders to increase this level in light of the taxation changes and other factors. TMW have already raised the bar to 145% on new business.

Bravestar

J_Devon wrote: »

...
I'm looking into the possibility of getting a Buy-to-Let mortgage to purchase a flat. I would then like to let the flat to my brother, who is currently receiving housing benefit....

Am I right in saying that the number of lenders willing to lend for this situation will be quite small? ...

Yes, if any at all.

See a mortgage broker who will tell you what, if any, opportunities exist to get the Great British Taxpayer to not only house your brother free of charge but also fund your purchase of a property :cool:

Bravestar

banks4u wrote: »

Don't tell the lender that you will be letting to a brother. ...

Are you advocating the OP commits fraud?:eek:
It is one of the standard questions/disclosures required on all BTL mortgages nowadays, as it has regulatory implications.

Discussion of illegal activities is not permitted on MSE.