Buy a house for a friend?

sleepyjones

First of all, sorry, I wasn't sure if this should be in the "Buying a house" or in the "mortgage" section.

Without going into all the "Don't do it" type replies ... we'll say, theoretically, could you buy a house for a friend on a residential mortgage?

It's not strictly a "Buy-to-let", as we won't be making a profit on it, anything they give us in "rent" will go straight to the mortgage, when it's paid off we'll sign the house over to them (£60k mortgage, looking to pay it off in about 7 or 8 years at £500 ish a month) ... I'm assuming it would be classed as mortgage fraud to buy the property on a residential mortgage?

EDIT : We've paid off our mortgage, so getting a mortgage shouldn't be a problem for us ... if the friend moves out, we fall out etc, we can cover the mortgage payments, and then change the mortgage to a buy-to-let and let it legitimately if need be.

beecher2

It is a Buy to Let regardless of whether you make a profit on it or not. You'll have to pay an extra 3% Stamp Duty if you already have a mortgage.

frazell

I think the question on everyone's mind is "can I be your friend?" Haha

sleepyjones

OK Cool, thanks Beecher ... that's kind of what I thought but I just wanted to double check on here

ViolaLass

£500 a month is £6k a year, which is £48k after 8 years. That won't pay off the mortgage even if it's a mythical no-interest one.

sleepyjones

Yeah, sorry, we can put forward a good deposit ... we were gonna try and work it so that their "rent" would be about £500 a month to try and get the actual mortgage paid off at the bank asap.

kingstreet

beecher2 wrote: »

It is a Buy to Let regardless of whether you make a profit on it or not. You'll have to pay an extra 3% Stamp Duty if you already own a property.

Slight amendment to clarify position.

JimmyTheWig

sleepyjones wrote: »

We've paid off our mortgage, so getting a mortgage shouldn't be a problem for us ... if the friend moves out, we fall out etc, we can cover the mortgage payments, and then change the mortgage to a buy-to-let and let it legitimately if need be.

Why not take the mortgage against your residential home? Then you won't need to worry about it being a buy-to-let mortgage, as you'll live there.
You can still offset the interest on this loan against rent payments in terms of income tax.

I'm not going to say "Don't do it". But I am going to say "Don't do it without knowing exactly what you are doing".
Whether you think so or not, you will be becoming a landlord with your friend as your tenant.

AnotherJoe

The main issue for me is the tax admin and legal requirements. There's a shed load of regulations you have to comply with because you'll be a landlord with all the heartache that constitutes. When you give it to them you'll also be liable for CGT.

sleepyjones

Hadn't thought of that, JimmyTheWig, thanks.

AnotherJoe, yeah, there's a lot to think about and we're in the very early stages of doing that ... the whole thing about signing it off to them once it's paid off was more of a "It'd be the nice thing to do" as opposed to anything we have agreed or even spoken about. From our perspective, we're in the "We don't really have anything to lose" mindset ... we'll be helping our friends out and if the worst comes to the worst we'll have a property to let out and possibly make a bit of money off.

The friend, I've known for 30 years, we went to school together so I'm not particularly worried about there being any problems.

tlc678910

Hi,
I just wondered if you decide not to hand over the property when it is paid off is there any benefit to your friend of renting from you? Would their £500 rent pay for a similar property to rent from someone else?

I only ask because your post title states buying a property for a friend but you sound like you are actually buying a property for you which you plan to rent out to your friend. You could also rent to anyone else and they could rent elsewhere. You may or may not give it to them at a later date.

I appreciate you said you don't want "don't do it" comments but I would say if you go ahead then don't tell them that you might give them the house. This will totally distort the landlord/tenant relationship. They may not want to ask for repairs etc as they will be desperate to keep you sweet. They could think it is fine to paint the whole house acid yellow (do whatever they like) as it will be theirs - but it might not be if you fall out/change your mind/decide you would rather give the 60K + investment to someone else.

If you can foresee yourself giving your friend a 60K house in the future (by then no doubt more) could you just give them the deposit now and they get their own mortgage?

If you would like to give your friend the house make sure it is in your will that it goes to them and not your own next of kin. Edit : you would have to consider how this would work if the loan is still outstanding against your own property - else your mate will be the only one with a paid off house!

I agree that the simplest way to raise the finance would be against your own house. Use a broker as not every bank will lend for the purchase of another property.

You will need to pay an extra 3% stamp duty (as you already have a property) You will need to register for self assessment and pay tax on the rental "profit". If you are a higher rate tax payer not all your mortgage interest will be deductable only the basic rate. Be prepared for government policies that further discourage second home ownership - I'm not trying to put you off, this is just reality. Even though you don't see your friend paying 5K off your mortgage a year as profit - the tax man definately does!

Make sure you fulfill your obligations as a landlord - even if a friend is living in your property. Most importantly gas safety checks, smoke alarms, carbon monoxide alarms (advised if not required), electrical safety cert (advised) and landlord insurance.

I hope you can be a good friend but remember the laws of unintended consequences - no good deed goes unpunished! Because good friends are so valuable that is why I would advise you don't tell your friend about perhaps giving them the house if you go ahead - it unbalances the power balance of the relationship - they are beholden to you. Only ask them to rent from you if they will be significantly better off renting from you than elsewhere (otherwise why do it?) Remember unless you have not already used your tax free allowance you will be giving a chunk of their rent to the taxman.

Good luck
Tlc

Another unintended consequence: if your friend would have saved a deposit and got their own mortgage in the future but they don't because they have an inkling of your plan and you then don't give them the house you may have distorted their future for the worse?