Buying flat to rent to daughter

melb

hi there am astounded by the price of rentals in our area eg £400 a month for a dingy basement bedsit/studio, or even a room in a shared house in some areas - how does anyone save any money towards a deposit when rents are taking up about 40-50% of their wages?

My partner and i own our property outright (worth about £250K) but left £50 on the mortgage as we were advised to at the time in case we ever needed to remortgage our house it would avoid further set up fees (I think that was the rationale).

My partner is in receipt of state pension but also works and this combined probably gives him an income of about £12,000 a year and i earn a little more as a part-time worker.

His private pension is one that he can "draw down" from and is worth quite a lot.

What we were wondering was about the possibility of my getting a mortgage (I am 56) and our daughter paying the £400 a month to us as rent which would cover the mortgage repayments.

We were looking to pay up to £85,000 for a one bed flat.

Does anyone think this is achievable or even sensible? What sort of deposit would we need to put down? I know i will have speak to a mortgage broker or someone in due course but if it is a silly idea there is no point.

Thanks

need_an_answer

In effect you are buying a second property and all that entails,together with becoming a LL

If a mortgage is required it would need to be on a BTL basis with a deposit of 25% or more,however many mortgage lenders do not then subsequently allow you to rent the property to family which may be your sticking point before you even start.

Mahsroh

Also worth considering the additional 3% stamp duty on the entire property purchase price, and your tax liability from your additional income going forward.

theartfullodger

If daughter later needs Housing Benefit she/you will probably be refused because you bought the place specifically to rent to her. See..
https://england.shelter.org.uk/housing_advice/housing_benefit/housing_benefit_renting_from_family

The general advice from landlords is never, ( NEVER!!) rent to friends or family. It so often goes wrong and ends in tears.

kingstreet

Deposit?

Thought you were raising the funds on your residential property?

need_an_answer

There are a few things to also consider when purchasing a flat.They are usually leasehold and come with management charges.
In the case of a leaseholder being a LL these are usually not paid by the tenant,so in factoring the amount that your daughter would pay you to cover the mortgage you will also need to consider the payment of these charges.

In becoming a LL you will need to set up a tenancy agreement,inventory and also comply to such things as annual gas safety checks which cost around £60 per year.
Not a great amount but it all adds up above and beyond the initial mortgage payment.
Also solicitor fees for the purchase together with searches and disbursements

GM has produced a very good guide to being a LL.It would be a good read for you to get some ideas on what will be expected going forward.

You don't specify your daughters age,but have you considered what will happen to the property if she outgrows it or decides to move on,especially if that is likely to be in the next few years.

Vegas2010

We've done similar for a family member as the interest on a mortgage is just so much lower than rent in the area allowing them to save and ultimately buy it.


Acquired a few years back so a bit different:


- Renting to family so not a BTL mortgage, instead it's classed as a second property. We needed 25% deposit and proof we could cover affordability without any rent being charged.
(You may have it simpler if you can remortgage your house to be a cash buyer. Would suggest seeking a broker but when we looked at using funds to immediately buy another house would be fine)
- You already own a property so you'll pay 3% stamp duty on this second property - cost of £2,550 on an £85k property (equivalent to 6 months rent at £400 per month so erodes benefit).
- If you charge rent you'll be subject to income tax. Given you sound like you're basic rate tax payers then you can deduct interest only from the mortgage (even if it's on your own residential remortgage) and expenses e.g. gas certificate, repairs. I wouldn't charge daughter more than that otherwise paying 20% tax.
- Instead, get daughter to save difference in a LISA (plus any extra) to get the 25% uplift, and add the monthly different to the ultimate purchase price and then use your capital gains allowance on increase in value (assumes house values go up).
- You are a landlord - don't take a deposit as it would need to be registered, get landlord/buildings insurance and an annual gas certificate.




Agree, many people have been burned lending to family but you'll have the 2nd property ownership as security but it could impact your relationship with your daughter if she doesn't pay. Housing benefit etc may well not be available given your ownership of the house.


Ultimately (and this is pre-additional stamp duty) we decided difference in interest compared to rent and the H2B/LISA add on was too big a benefit not to give it a go. A few strains but working fine so far. Could be an overall saving of over £20k.

Cakeguts

You don't say how old your daughter is but there is a tendency for parents to try to impose their housing ideals onto their children. I am a landlord and our tenants tend to rent from choice. They can afford to buy maybe not the house that they are living in but they could afford to buy something in the local area they just choose not to. Our houses are in prime areas and the rents reflect this. There are other perfectly good and safe areas nearby which are cheaper to rent and buy in. For some people renting is really convenient. You can rent in a more fashionable area than you can afford to buy in, you can rent the kind of house that you wouldn't buy, you can move areas much more easily and you can move in with someone and not have the hassle of who gets how much of the equity in the house if you split up.

You might like to consider that the reason why your daughter hasn't saved a deposit is because she doesn't want to?

skint_chick

melb wrote: »

hi there am astounded by the price of rentals in our area eg £400 a month for a dingy basement bedsit/studio, or even a room in a shared house in some areas - how does anyone save any money towards a deposit when rents are taking up about 40-50% of their wages?

If £400 a month is 40-50% of your daughter's wages then you might want to rethink your plan. What if she's short on cash one month and asks not to pay the rent or pay less? If the £400 will just cover the mortgage payments then what about interest rate rises, landlord's insurance, gas certificate, ground rent and service charges?

Is your daughter keen on this idea? Have you discussed it? What if she loses her job, wants to leave the flat, falls out with you and stops paying rent?

If she is only making minimum wage or in an entry level job (if £400 is 40-50% of her wage) then maybe you should find out about her career goals and plans and see if there is something you can do to help her out there - if there is training courses/study she'd like to do to help her get promoted etc.

If your daughter really wanted to buy surely she would have started saving something, even if it was only a few pounds a month. If she has then perhaps offering to match her deposit or buy her some furniture for her new place would be a better idea.

xylophone

Has your husband yet drawn on his pension?

Would he be able to consider drawing the 25% PC lump sum and making a gift to your daughter as the deposit on a flat?

Would she then be able to get a mortgage?

agrinnall

You will need a regulated mortgage rather than a normal one, which is more difficult to come by. A broker should help you to find one if you decide to go ahead.