Buying property with sibling: Financial options

george4064

Not sure whether to post this here or in the Property forum, I believe my situation fits into either forum. So here goes!

I am a first time buyer, as is my sister. I live in Southampton, and my sister currently lives with my parents in north Hampshire. I'd like to get onto the property ladder, and we have discussed buying a property 50/50 in Southampton.

Something like a 2 or 3 bedroom property, where we split the mortgage equally. I will be living in the property (and paying rent for my room in the house, i.e. net result paying 50% rent to my sister), and renting out the other 1 or 2 rooms to a housemate.

We both have Help to Buy ISAs with approx £3.8k in each, our combined salary is about £45k and we both have considerable savings (about £100k in total). We're both in our mid/late twenties. I've been tweaking mortgage calculators to see if we can make the most of government schemes including Help to Buy ISA and thr Help to Buy Loan Schemes.

Here are my current finances (been saving up for years!!):
TSB: £1.5k
Tesco: £3k
Nationwide: £0.5k
Halifax HtB ISA: £3.8k
P2P: £4k
S&S ISA: £55k

Just wanted to hear peoples thoughts on this? Do you see any major issues or suggestions? We are still in the planning stages at the moment, so still a long way to go!

The other thing I have on my mind is that my preference would be to sell as little as much from my S&S ISA, because I get a good return on that and I think it would perform better than a property would.

With the £250k limit to use HtB ISA, I am tempted to just ignore this by buying a property over £250k and forfeiting the 25% bonus.. Spending max £250k severely limits our options.

AnotherJoe

there are many pitfalls, and you'd read some of them in the house selling /buying and mortgages forums so I'd say this is definitely the wrong forum and you should probably go for the house buying forum. This sort of question comes up quite regularly there I can tell you the general majority advice will be "don't"

Most of the issues revolve around "exit criteria" - one wants to sell other doesn't, what share of equity, what if one selling means the other loses their house because they can't afford to take on the mortage alone, and so on. There was one quite recently, two sisters, one not living in house wanted to sell, the other living in house objected because she would have to go into rented, the first one felt guilty and so on.and this was despite them having agreed to sell should one want to.

Also to query you in your plans, you say you'd rent your room from the two of you?

Shouldn't you pay rent for the whole house (halved) rather than a room? If you owned the whole house and let it out you'd get considerably more than for a room.

And you say you'd let a room out to a lodger ? Would you get the money from the lodger ? Is that fair? Shouldnt she get half?

There's also capital gains tax issues for your sister when you sold, would you pay half of her CGT if there was some due ?

george4064

AnotherJoe wrote: »

there are many pitfalls, and you'd read some of them in the house selling /buying and mortgages forums so I'd say this is definitely the wrong forum and you should probably go for the house buying forum.

Most of the issues revolve around "exit criteria" - one wants to sell other doesn't, what share of equity, what if one selling means the other loses their house because they can't afford to take on the mortage alone, and so on. There was one quite recently, two sisters, one not living in house wanted to sell, the other living in house objected because she would have to go into rented, the first one felt guilty and so on.and this was despite them having agreed to sell should one want to.

Also to query you in your plans, you say you'd rent your room from the two of you?

Shouldn't you pay rent for the whole house (halved) rather than a room? If you owned the whole house and let it out you'd get considerably more than for a room.

And you say you'd let a room out to a lodger ? Would you get the money from the lodger ? Is that fair? Shouldnt she get half?

For simplicity, lets say we buy a 3 bedroom house for £300k. We own it 50/50, and we pay the mortgage 50/50.

We set a monthly rent for £500 per room. So I pay £500 per month for my room (£250 is paid to myself, and £250 to my sister), and same rent arrangement for the other two housemates..

Does that sound about right? Or are there better ways to arrange this?

AnotherJoe

That sounds fairer to me.
But as I said, its the exit criteria. Let's say one year in sister has met someone and wants out. Or you meet someone and don't want lodgers would you be quite sanguine about selling so soon?

I'd say as long as you both realise and agree this is a short term deal, document all this, and plan to sell in say five years time maximum (may not happen but have that in mind) it's probably a reasonable way of getting into the housing market.

You'd also need to be very choosy about the house you bought, with lodgers in mind. Something with say two big rooms and one small one might not work (unless you got a Mon-Fri lodger perhaps, there's a market for commuters like that if you are in a big city. )

Eco_Miser

It appears that your sister would be Buying to Let, so no HTB, and different mortgage criteria.

xylophone

You are both young, might wish to be mobile in respect of jobs, marriage etc.

Why would you wish to tie yourselves together in such an arrangement and risk friction when one wants to sell, the other doesn't, one is resident one is a landlord, etc etc.

Why not explore the possibility of buying on your own and taking a lodger to help cover your costs?

george4064

xylophone wrote: »

You are both young, might wish to be mobile in respect of jobs, marriage etc.

Why would you wish to tie yourselves together in such an arrangement and risk friction when one wants to sell, the other doesn't, one is resident one is a landlord, etc etc.

Why not explore the possibility of buying on your own and taking a lodger to help cover your costs?

That is definitely an option, however would taking a lodger be allowed if I utilise the government HtB ISA bonus and/or the help to buy loan scheme to purchase the property?

xylophone

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

There seem to be few restrictions.

george4064

Would greatly apprciate some more input from others, the thread has just been moved from Savings & Investments to here.

getmore4less

As AJ says work on the exit criteria first.

The equity logistics/finance is relatively easy when you think along the lines of a landlord/tenant split scenario(see below *).

There are even ways to get round the CGT issues

exit scenario can be the hard part.

not just a one wants to exit the deal with a buyout/sell but other changes than can effect the core deal.

deaths.
one of you gets a partner.
can sis move in at any time if she wants.
can sis put lodgers in or veto your choice.
can't pay won't pay(eg job loss) although less of an issue if you are letting rooms and building up a contingency/reducing debt.
...

* if you split the ownership from the occupancy like a landlord tenant it keeps the finances relatively clear.

eg
as owners you are responsible for the debt, building insurance, maintenance/repair etc. probably a good idea to keep some cash in a slush fund that is topped up from any lodger money.

as occupiers you cover the council tax all the utilities etc. just as if you were renting a place.

I have covered how you deal with equity/debt in loads of previous threads.

george4064

Thanks gm4l, do you see any problems with my sister owning half of the property (thus paying half of the mortgage) but not actually living in the house.. Would we be able to take out a joint mortgage for the whole house (and then split the payments)?