Funding House for Child - Advice

17lbp

DD wants to move in with her BF but buying is not an option for them just now. We are selling our house which is valued at 225k and we have a mortgage left of 48K, after allowing for fees, stamp duty for purchasing etc we expect to get 173K out of our house.
Ideally DH and I would like to downsize and look for a house at approx 190K hence leaving us a 17K mortgage. However we thought we could buy DD a flat at about 70K which we would rent to her, we thought the best way to do this would be buy the flat outright and then have an 87K mortgage on our house, hence less LTV which would give the better rate. I also recently took out a 5 year fixed rate with Natwest (selling wasn't even thought about when we did that,) so I'm pretty much tied to sticking with Natwest or I'll have early redemption fees.
The rent my DD pays us will cover 70K of the mortgage for her flat and DH and I will obviously pay our 17K.
Does anybody see any holes in my plan? Is there a better way to do this?
Another one for all the maths geniuses out there - were we to do this we would be taking the mortgage over 16 years to make the payments affordable for DD however DH and I would like to chuck as much as we can at "our" part of the mortgage to have it paid off as soon as, I'm assuming Natwest won't allow me to split my mortgage over different terms but they do allow 10% overpayments, would it be possible to devise a formula to create a spreadsheet so I know how much each of our balances are reducing by allowing for our overpayments so hopefully DH and I can have our part paid in few years?
Any advice or a better way to do this would be appreciated!

dimbo61

Holes I can see a few !
Lenders will ask WHY you want a bigger mortgage OH to downsize but also buy a flat to rent out to our daughter.
Alarm bells start ringing as you become a Landlord with a relative as a tenant !
Can you afford a bigger mortgage at your ages ?
Costs of selling and buying 2 properties and the extra stamp duty.
You are starting a BTL business

Thrugelmir

Rental income you receive is taxable.

17lbp

Thanks for the reply.

The payments should be about the same as what we are paying just now as we took our mortgage over a shorter period, we have just over 8 years left and we're also overpaying £100 per month. The new mortgage would be over a longer term so much the same payments.

I'd happily tell the lender what I was doing with the capital I'm releasing - perhaps I'm being naive but is there any reason why the lender would object to me doing this? I assumed (perhaps wrongly) that so long as they approved my mortgage application then I wasn't doing anything wrong - after all I would "only" be looking for a 87k mortgage on 190K house which is still a good LTV. I have also figured in the legals, stamp duty etc. for both properties.

My thinking behind the whole thing is as DD wants to move out then her only option will be private rental hence paying someone else mortgage so I thought surely if we can fund this it would make more sense she paid our mortgage which will ultimately all go to her in the end. I don't feel like I'm starting a BTL business as I not looking to make any profit from this, merely cover the costs of the mortgage that were used to buy the flat.

Please correct my thinking if I'm wrong as this is all new to me.

Kayalana99

dimbo61 wrote: »

Holes I can see a few !
Lenders will ask WHY you want a bigger mortgage OH to downsize but also buy a flat to rent out to our daughter.
Alarm bells start ringing as you become a Landlord with a relative as a tenant !
Can you afford a bigger mortgage at your ages ?
Costs of selling and buying 2 properties and the extra stamp duty.
You are starting a BTL business

They don't need to know the DO is renting the apartment, all they need to know is that they wish to have a B2L property with some of the money from the sale of the house.

It's perfectly reasonable.

dimbo61

So you are going to Invest in a property which you are going to rent out.
Many BTL lenders will ASK if you are renting to family ! What do you say ?
Not sure what you earn but new tax changes may well effect the profit ( if any ) you make