Buy-to-Let and Family

Swiggle

My parents are getting a divorce to put it simply.

My mum is in her 50s, disabled, has mental health issues and is medically retired. She doesn't/can't work. So there is no way she could get a mortgage. She won't get council housing due to the money she will get from the joint house sale, but it isn't enough to buy a house outright.

My dad however will be fine as he is employed and earns a good wage.

I want to help my mum as I am worried how she will cope. Basically, I want to get a buy-to-let mortgage on a property, somewhere that she and my younger sibling can live without having to worry about eviction/rogue landlords. They will be paying rent under an official and legal tenancy agreement (albeit much less than market rate - enough to pay the mortgage repayments, CG tax etc - I will not be making any money from this).

I have read that some/all mortgage providers will not lend buy-to-let if you plan on renting to family/parents. Although the rules don't seem very clear to me. Can anyone shed any light on the requirements or legalities? Obviously, I want to ensure I am doing everything above board.

kingstreet

You don't need a BTL mortgage.

You can purchase a property for a dependent relative to live in using a residential mortgage as mentioned in another thread earlier today.

As you have observed, a BTL mortgage for a relative is a regulated product requiring your income to service it, rather than rent so you might as well get a better rate.

A broker will help you avoid the lenders who would have an issue with the deposit coming from someone who will live in the property but not be party to the mortgage.

Swiggle

thank you very much for your advice. It is very helpful to know.

The idea is that my mother/sibling pay the monthly payments so that myself and my partner do not lose out or benefit financially ourselves.

So, just to clarify, my mum and sibling will then be able to transfer the monthly payments for the mortgage every month into my account. And I would then pay the mortgage. And this would all be above board?

I presume if they were to move out, and I wanted to rent to strangers I would then need to get a BTL mortgage?

Lysimache

Are you a higher rate taxpayer? One thing to account for if so, is that you may have to pay income tax on some of the money your mother gives you even if you do not financially benefit.

Brighty

Only the mortgage interest is tax deductable, not the whole mortgage payment. So the tax man will want 20% of the difference between the full mortgage payment and the interest part of it.
Also, if you already own your own home, are you aware of the extra stamp duty charge for additional properties?

Swiggle

Hi Brighty,
Great information. Thank you.
Hypothetically a mortgage of £400/m with interest payments of £100/m. I would pay 20% on £300 per month?

And I am aware of the stamp duty but that would only be payable upon selling though yes? Is the additional stamp duty paid on the profits made due to the increased value of the property? Or the overall sale price?

The idea would be that the property would eventually belong to my sibling, who is much younger than me, hence why he cannot apply for a mortgage at this stage.

It all sounds complicated but it is the only way that I can be sure that my mother and sibling will have a decent roof over their heads, otherwise they will likely be homeless.

Brighty

Hypothetically a mortgage of £400/m with interest payments of £100/m. I would pay 20% on £300 per month?

Correct

You're confusing stamp duty with capital gains tax, yes you would be liable for CGT when you sell, it's based on the difference between what you sell for and what you bought for, so on the profit. But stamp duty is paid when you buy, and a new higher rate has just come into effect for additional properties, an extra 3%

Swiggle

Yes thank. Sorry I don't know why I said SD on selling, I know it's buying.
But thank you for alerting me to this additional cost.