Buy a house for a friend?

sleepyjones

We're basing it on a mortgage of around £45k, we're looking at putting about £15k-£20k down as a deposit.

Representative example: A mortgage of £45,000 payable over 8 years on our tracker rate for the mortgage term of 26 months at 3.04% above the Lenders Bank Base Rate and then on our current variable rate of 4% (variable) for the remaining 70 months would require 26 monthly payments of £538.94 and 70 monthly payments of £546.03. The total amount payable would be £52,482.00 made up of the loan amount plus interest (£7,234.00) and valuation fee (£198). The overall cost for comparison is 4% APRC representative.

It's a bit over the £500 a month, but we'd pay the excess (we don't have a mortgage or anything at the moment). So, our logic is that they'll pay off Most of the mortgage in about 8 years, then they'll continue paying for 7 years to cover the costs of fees / payment holidays / insurance / repairs / stamp duty, all that kinda stuff.

beecher2

Is that a BtL mortgage?

Surely the additional 7 years of payments will be paying for the other additional outlays you'd be making such as the £15 - 20k deposit?

sleepyjones

Yeah, B2L mortgage with RBS.

The additional 7 years of rent will be paying us back for the deposit / fees, stamp duty, anything extra we add onto the monthly mortgage etc etc, yes, that's the plan. It might not even be as long as 7 years, could be more .. we're not sure until we know exactly how much it's all going to cost, what happens with Interest Rates etc

That mortgage rate was just from a Price Comparison search, we'll know more once the IFA gets back to us

Mojisola

sleepyjones wrote: »

As far as the signing it over thing is concerned, we had a wee chat about it over the weekend (me and the Mrs, not with them) and we think the plan is to try and buy the house at £60k, we'll charge £500 a month in rent and on the condition that they stay in the house, pay the rent for 15 years, we'll sign it over to them

How will you word an agreement like that?

Do they have the stay the complete 15 years or lose everything?

If they stayed for 12 years and then got the chance of a great job elsewhere and so moved away, would you owe them part of the value of the house?

Would they be tenants so you comply with all the landlords' responsibilities or would you expect them to treat the house as theirs and pay for all the maintenance and repairs?

beecher2

sleepyjones wrote: »

It might not even be as long as 7 years, could be more .. we're not sure until we know exactly how much it's all going to cost, what happens with Interest Rates etc

You'd have to work it out before you knew what was happening with interest rates though as your friends will need to know when the property will be there's, and exactly what will happen if they leave before that date.

I think you need to go into this assuming you will lose money, and if you don't then treat it as a bonus.

sleepyjones

It's more of a friends agreement than a legal agreement, as far as any legal entity would be concerned, they are just renting the property from us.

I would hope they're not going into this solely on the assumption that they'll own a house in 15 or so years. They won't have any ownership of the property until a date arises when everything we have paid out has been reimbursed through rent ... in the meantime, they're saving £125 on their current monthly rent and getting a nicer house with a garden. So if they choose to leave after 5 years or 14 years they've saved themselves a good bit of money on rent, had nice wee payment breaks before Christmas and have relaxed, friendly landlords who aren't out to make a quick buck.

I think maybe signing the house over to them is a bad idea, now I've got images of them selling it a day after it's signed over and making £60k (which I guess is fine, but I'd be pretty bummed if that were to happen)
Possibly a better way to handle it would be to let them stay for a nominal rent payment (ie £50 a month) to cover any ongoing costs (after everything has been paid off).

I'm made a decision writing this that we won't mention signing it over to them at all, they're just renting as far as they're concerned and then once everythings paid off we can look at dropping the rent right down and updating any wills to gift the house to them / their children.

Thanks for all the replies folks, given me a lot of food for thought and I think we're heading in the right direction now.

Sea_Shell

Will you be letting them choose the house you buy, and for them to live in? What if they're not keen on the style/street/whatever, despite cheaper rent?

just a thought.

sleepyjones

They've already seen a property that they liked, so it's all sorted, we just need to get the mortgage sorted and then finalise the rent and stuff with them.

Nice house with an enclosed garden, just a couple of streets from us.

somethingcorporate

What happens if you fall out?

Happy to evict them?

Plenty closer relationships (i.e. family) fall out over much smaller things that rips family apart over money. You need to have a fall back if things turn sour.

sleepyjones

I wouldn't exactly say "Happy" to evict them but if they're not paying the rent, yeah ... needs must, we're not running a charity ... and if we've already fallen out over something it should make the eviction process a lot easier.

If things do go sour, then the house is ours, so we'll evict and get someone else in to rent it.