Buy to let portfolio involving a rental to family?

jimmybennett

I’m after some guidance on how my parents can use the value of their home to help them retire now as both are still currently working. My father is 68 so can draw on his pension but my mother cannot access hers for another 8 years. They cannot afford to both retire now and live comfortably on my father’s pension alone. However, their mortgage on their home is fully paid up and the house is worth approximately £200k.

Meanwhile, my wife and I have begun saving with the aim of building a 25% deposit for a buy-to-let mortgage on another property we would then rent out. Im on £40k, she is on £37k but we are still a couple of years away from having a big enough deposit.

It occurred to me that there could be an opportunity here to both help out my parents and get us into property investment at the same time (and sooner). I was thinking of something along the lines of this scenario
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1. My parents sell their home for £200k and move in with us temporarily.
2. They then loan/gift us £100k from the proceeds of the sale and use the other £100k to help fund their retirement for the next 8 years until my mother’s pension kicks in.
3. I then take the gifted/loaned £100k and buy three properties using buy-to-let mortgages. Two at around £100k each (£25k deposit each) and one at around £200k (£50k deposit).
4. I would then rent out the two cheaper properties to tenants at around £500 per month and then rent out the more expensive property to my parents.
5. As my parents have loaned/gifted me the original £100k, I would effectively pay this money back to them using the income from the rented properties which they in turn would pay back to me as rent for their property.
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The above is only a very rough-cut scenario and all I’m asking at this stage is whether this kind of arrangement is something that could be done legally and whether a lender would be happy to grant the mortgages on this basis? If not, is there something similar we could do? I am not interested in making any short term profit from renting the houses, its more about helping my parents to retire early while also getting some long-term property investments going for us. Any help or advice is much appreciated.

bob_bank_spanker

Typically a BTL mortgage mandates that you receive 125% of the mortgage cost as rent, and I think they also forbid renting to family. A good mortgage broker should be able to advise.

LEJC

Check the mortgage lenders critera...many suggest that a BTL mortgage cannot then allow the property to be rented to direct family.

jimmybennett

Thanks for the responses, I appreciate the “rules” in this area are a little murky, I’ve done a bit of research on it and haven’t found anything concrete one way or the other. Appears to depend on the lender as to what they will allow in terms of renting to family but I can’t find any info in terms of this specific scenario whereby we are effectively using rental income from two properties to pay the mortgage on a third property for family members to live in.

Just to clarify, my only goal here is to find a way for my parents to retire early using the capital of their house in some way to achieve this, it’s not for any financial gain on my part. The reason I’ve suggested the buy-to-let scenario above is that it’s something I will ultimately be doing in a few years anyway. I just wondered if there was some way to use the asset/capital of my parent’s house combined with our financial security and youth (i.e. ability to get a mortgage) to help them achieve their goal of retiring now.

As I said, any suggestions of other ways they could potentially achieve this are welcome.

00ec25

jimmybennett wrote: »

Just to clarify, my only goal here is to find a way for my parents to retire early using the capital of their house in some way to achieve this, it’s not for any financial gain on my part. .

not how it looks, do you really mean what you have written?

your parents currently own a property outright
your plan means they will end up not owning any property and moreover paying rent to you for the "privilege" of living in a property you own but they partially paid for

in such a circumstance your parents could have to pay income tax under the Pre Owned Asset tax rules unless the rent they pay you is full market value for such a property

jimmybennett wrote: »

The reason I’ve suggested the buy-to-let scenario above is that it’s something I will ultimately be doing in a few years anyway. I just wondered if there was some way to use the asset/capital of my parent’s house combined with our financial security and youth (i.e. ability to get a mortgage) to help them achieve their goal of retiring now.

As I said, any suggestions of other ways they could potentially achieve this are welcome.

landing them with a never ending requirement to pay rent to you does not seem to be an improvement to their retirement prospects

jimmybennett wrote: »

5. As my parents have loaned/gifted me the original £100k, I would effectively pay this money back to them using the income from the rented properties which they in turn would pay back to me as rent for their property.

so your parents have blown £100k of their capital from the sale of their house on living for the 8 years it needs to get to mother''s pension age. You then get to use the other 100k as a free loan to fund your property portfolio and then you expect them to pay it back to you in the form of rent so that your parents end up -£200k and without a property they own. Exposed therefore to you potentially having to sell the house they live in if your financial circumstances take a turn for the worse given that you also have 2 further properties that could go belly up

your parents need to take professional tax and/or financial planning advice before doing something like that.

Pixie5740

You've not only got the issue of letting to family which requires a regulated BTL mortgage there's also the issue of the deposit coming from the tenants. You would really need to speak with a mortgage broker.

Options for your parents are to downsize into a smaller/cheaper property therefore freeing up some equity alternatively they could look at some sort of equity release product.

Keep_pedalling

Your parents do not seem to have a great deal in the way of assets, so they should not gift a large chunk of it away. Just think where this would leave them should you die before them or run into financial problems through redundancy, ill health or divorce.

jamiehelsinki

Don't forget you will pay around 10k in stamp duty plus buying fees on top.

If you hit financial difficulty or divorce in the future your parents could really suffer.

Tiners

It never fails to amaze me how much inconvenience and potential problems people are prepared to put themselves through in order to jump on the Borrow To Leech bandwagon... a bandwagon that, in case you hadn't noticed, has pretty much ground to halt due to the tax and borrowing changes introduced specifically to deter the over leveraged amateur chancers from obtaining their ''portfolios''