Buy a house for a friend?

sleepyjones

beecher2 ... Yup, we have a note of interest, we've recevied the home report. Sent the IFA all the details and we're meeting him next week to go through options (I think).

Pixie ... yeah, we've read up quite a bit on it (since posting the original message)

waveneygnome

Hi Sleepy..been following this thread and its development.

We did something with similar aims, but it didn't end well.

We had friends who were paying £600pcm, just had a child, landlord evicting them as wished to sell the property. They were desperate to get on the property ladder but had no savings. We already owned a spare house, with a tiny mortgage, and had just bought our 'forever house'. We agreed to let them rent out the house just for the interest element of the mortgage £200pcm = saving them £400pcm..........the idea was that they would save the £400 a month and build up a deposit, and they would have fairly secure tenure. We ended up working overseas for 3 yrs soon after and obviously kept contact, but no visits. When we came back, they had fallen out and were in the process of separating. They should have saved up over £15k.....more than enough for a house deposit.

a) they hadn't saved any of the £400's
b) commercial rents had increased to £800pcm for the same style property
c) they moved out to smaller flats, but still had a massive financial shock.......we had to lend them each more money to pay for separate deposits/rent fees etc.
d) we felt a mixture of awfulness about the situation, but also couldn't understand why they hadn't stuck to the plan of saving. I was kicking myself, because originally I was going to charge them £600pcm rent, but place £400 into a savings account for them, then gift the money once it had built up enough for a deposit....but I changed tack because I didn't want our friends to think I was patronising them/trying to control what we felt were their 'savings'.

I really hope it goes well for you, and think your plan of not mentioning gifting the house to them is best. Just watch out though that if they are in there for sometime and for some reason HAVE to move out, it can be a big shock to them if rents have moved up significantly.

dobymicks

JimmyTheWig wrote: »

You can still offset the interest on this loan against rent payments in terms of income tax.

That is very interesting, how does that work?

sleepyjones

Thanks Waven', I hear what you're saying.
It's an interesting story that I'll tell them about when we finally get everything sorted and do a sit down to discuss everything.

getmore4less

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.

dobymicks wrote: »

That is very interesting, how does that work?

It does not matter where the money comes from to buy the property any interest on that money is able to be offset against rental income.

sleepyjones

Hey folks, wee update on this.

Got accepted for a BTL mortgage at 2.9% (A lot lower than we were expecting). Just waiting to hear back from the bank as there's an "issue" with something in the home report

"The main walls are of non traditional construction, namely, Wilson concrete blockwork construction in a cavity formation with thermal cladding"

but we're not expecting this to cause any problems.
Should hear back by tomorrow.

sleepyjones

All good, just need to put an offer in now!

nimbo

sleepyjones wrote: »

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.

The nominal rent works well for them but as soon as the boiler goes of the roof needs replacing this nominal rent means you can no longer have that nice holiday or that essential window upgrade at yours. You'd still be reasppnsable for everything a landlord should do and I'm pre arty certain on a bad month that will cost more than 50 quid.

sleepyjones

Yeah, that's one of those bridges we'll cross when (and if) we get to it, we are talking 10-15 years down the line until it gets to a stage where they have paid off the mortgage (as far as their rent is concerned), so I'm not overly worried about that kind of thing at the moment. We aim to have the mortgage paid off in about 7 years by adding our own contributions over and above the rental income, so we will still be receiving a £500 a month rental even when the mortgage has paid off (for around 6 years - the time it'll take them to pay off the mortgage after we've paid it off fully ... ie: for about 6 years before they go onto nominal rent), so it shouldn't really be a massive problem.

Thanks for your input though.

forumposting12

Investment property has advantages, but before you purchase a rental house with a pal, it's smart to know what the challenges might be.....