Buy-to-let mortgage to rent to parents

Hellofromoverhere

Hello there. I was wondering if anyone had any advice. The situation is a bit complicated so I will try to present it as concisely as possible. 

My parents took out a SAM (shared appreciation mortgage) in the late 90s and are now in the position where they need to downsize but can't afford to. The house has tripled in value and, depending on how much they are able to sell it for, they will be left with something like £50,000 - £120,000. The area they live in has very little/nothing they could buy for that amount. The likelihood of them getting another mortgage is fairly low given they are both in their 70s and retired?

My own situation: I work part time and my husband has a fairly well paid full time job but we have been unable to save for a deposit yet, for various reasons, and so will probably be renting for a good few years more. 

I wondered if there was any way we could use the money from the sale of my parents' house as a deposit for a new house for them and take out a mortgage for them? A buy-to-let mortgage I imagine? Would this be possible logistically with the deposit for this coming from my parents' sale of their house? And would this affect our ability to get a mortgage of our own in a few (realistically, probably around 5) years?

Thank you so much for your help. 

jamielutz1987

@Hellofromoverhere
You effectively need a BTL lender who is ok with -

- regulated BTL (as your parents will be living in the property)

- accepts gifted deposits from someone who will go on to live in the property

I imagine the above rules out a lot of lender but a broker would be able to tell you if this is something that can actually be done.

Impact on you-

- will lose your first-time-buyer status and any government incentives that may be available

- will have to pay 3% stamp duty surcharge when you buy a property in 5 years (unless the rules have changed by then)

This sounds like a not uncommon scenario, so hopefully there is some way to make it work either through a BTL mortgage or otherwise. Good luck!

Brock_and_Roll

Your parents currently have the security of their own home with substantial equity - why exactly do they need to sell their primary asset? If the place is a bit large, they could always take in a lodger etc. If they dont have enough "living money" now, how are they going to cope paying you rent each month? Additionally from your parents persepctive, anything that "deprives" them legally of their equity can and almost certainly will be assessed as "Deprivation of Assets" should your parents ever need state-funded care. Spotting the legal transfer of a house is a no-brainer these days for LAs.

Your proposal will not work for a number of reasons - primarily because few BTL mortgage lenders like regulated BTLs -i,e, if family members the tenant. They would also expect a significant positive yield on the rent....so back to my first point.

And yes having a mortgage will impact your ability to get another mortgage!

jamielutz1987

Brock_and_Roll said:

Your proposal will not work for a number of reasons - primarily because a mortgage lender will not lend if family members the tenant. They would also expect a significant positive yield on the rent....

@Brock_and_Roll Sorry, just wanted to point out that the part in bold is not correct. It is called a regulated BTL and there are lenders who will lend where the property will be let to family.

https://www.onlinemortgageadvisor.co.uk/buy-to-let-mortgages/regulated-buy-to-let-mortgages/

Brock_and_Roll

Yes of course you are right - but having looked at the OPs other post, I fear the motivations are all wrong here and have nothing to do with what is best for the parents.

Hellofromoverhere

@jamielutz1987
Thank you for your reply, it was really helpful.

Hellofromoverhere

@Brock_and_Roll

Brock_and_Roll said:

Yes of course you are right - but having looked at the OPs other post, I fear the motivations are all wrong here and have nothing to do with what is best for the parents.

I don't really know what you mean by that. My other post was about not being able to access my husband's credit file. We think that the issue may be his current account is with NatWest, opened over 20 years ago, and apparently other longstanding NatWest customers have had this issue as their account has never been reported to credit agencies. He has taken out a credit card to try and build a credit score and we can now access his credit file and his score has improved considerably this year. 

With regards to why my parents need to sell, they are elderly and living in a five bedroom house that needs significant work doing to it. (It is extremely expensive to heat, for example, due to its size but also things like the windows being single glazed and many of the wooden frames being rotten. There are many other maintenance issues with the house which I didn't go into in my original post.) I would be very happy for them to stay there if they were happy and the house suited them. I don't particularly like you assuming I have ulterior motives when you do not know me or the full details of our situation. They are almost 80 and don't particularly want to take in a lodger, nor would this be particularly easy given the work that needs to be done to the house. They do have "living money" and are currently paying a smaller mortgage on the house. With the size of the deposit on a new (smaller) house, I the mortgage/rent payments would be more than manageable. Thank you anyway for taking the time to reply.