Sisters' mortgage to buy dad a flat

Yazoop

Hello there! This is my first time on the forum, so please be gentle with me

My Dad lost his business, and our family home along with it, in the recession of the early 90s. He has rented (in London) ever since. He is now over the retirement age and still working in a fairly physical job, which he won't be able to do health-wise for much longer (in all likelihood). He is therefore looking to move to Kent, where the cost of living is lower. He has a monthly pension and the state pension, as well as modest savings - essentially his income without working isn't all that much but he would be able to get by if he moved out of the capital.

However, our biggest concern is housing - renting into your twilight years (even if the rent stays the same in the areas he is looking at) is never stable, and we would much rather there was a more permanent solution. He would be able to put down a deposit for a 1-bedroom flat (e.g. we are looking at flats at around 85k with approx 25k deposit available) and fairly comfortably pay the monthly mortgage out of his pension, which would be cheaper than renting. If interest rates rose in the future, we would also be able to help plug the difference between us all pretty easily. Obviously, given age and history, he won't be able to get the mortgage himself. There are three of us siblings in the family willing to help out by putting our names to a mortgage, but not sure what the best options are.

Is it easier to get a joint Buy to Let mortgage, or one of us gets a BTL mortgage? Or are there any other mortgage options for families beyond BTL arrangements? I know there are arrangements for parents guaranteeing mortgages for children, its a bit harder to find the answer the other way around! Anyone with any advice or have been in a similar situations.

tom2205

If you take out a BTL mortgage it becomes regulated as you will be letting it to a family member. In that sense it changes the affordability structure and it wouldn't be classed as a self sustaining mortgage and they would make sure the income justifies it.

With the scenario, if any of the mortgage applicants have existing mortgages / loans / credit cards that would all be factored into the affordability assessment. A guarantor mortgage would work the same way and the income assessment would be based on just the guarantors income and all of their commitments but can still be done vice-versa.

Taken from a lender directly:

Acceptable reasons for a mortgage to proceed on a Guarantor basis:

The property to be mortgaged is for a young professional who is likely to have a quick increase in salary within the next few years, and will ultimately be able to support the mortgage in the long term, or,
The customer will never be in a position to afford the loan but due to relationship the Guarantor can establish a long term commitment. e.g. elderly relatives or children

Yazoop

Thanks Tom2205 - that's really helpful. Two of us have existing mortgages and therefore may be harder to get a second. My other sister does not own a property, is currently renting and would probably be the best person to take on the mortgage on that basis - however she is a freelancer and this may cause difficulties.

Regarding the BTL option, it seems that typically lenders want a formal arrangement that rent is set at 125% of the monthly mortgage payment or thereabouts. We could do that with dad, if it is the most realistic option of getting a mortgage, and make it a formal arrangement at 125% (which he could still afford - and indeed may still be less than renting by the looks of it) but we could still informally help him out with utilities, council tax etc. I know there are stamp duty / tax implications with BTL but it might be the best way to go - a lot to research on this!

amnblog

One or more of you can get a mortgage on a residential basis and put Dad in the property.

You can also get a buy to let mortgage and put Dad in the property.

You can do neither of these things with 95% of available mortgage deals so you need a good mortgage broker to manage this for you.

tom2205

In relation to the rental calculations they vary from lender to lender based on the loan amount but the go to rate nowadays is usually 145% at 5.5%

Lets say mortgage of £80,000.

£80,000 x 5.5%
£4,400 pa / 12
£366 pm x 145%
= Minimum rental charged £532

csgohan4

ensure you have looked at this thoroughly, should your sister want her own place, she would be subjected to extra stamp duty for a second home.


I am sure you are aware of the old saying of never mix money with family.