Buying Parents house, and renting out theirs

Familyman01

I cant find any threads like this one, but it is a bit of a strange one!
My parents live in a small house in the North, where house values are low compared to where I am. I am considering buying them a bigger house, and then renting out their existing house, to offset the mortgage payments I will be making on the new house.
Is this possible, I am going around in circles in tax implications etc.
Some of the variables:
- I am a home owner, but I think I would satisfy the affordability requirements for a second home (as in my income can cover both mortgages without the rental income)
- I would put the new house in my name, the existing house is in my parents name 
- I can put in a 20% deposit
- My parents still owe a bit on their mortgage, but I could pay that off if need be to make this easier
- I don't want to sell my parents home, I think they will need the equity down the line and I would like the rental they would get to help with the mortgage payments
Is the above in any way sensible, and if not what is the best way to go about this (the aim is to get my parents into a bigger house, without them taking on any debt or liabilities as they are retirement age now).
Many thanks

tim_london

You need to pay off your parents mortgage in order to let it out.

If you go down this route then you have an option of your parents being the landowner of the letting business.  Not sure if your parents would want the hassle.  There are ways to minimize it.

Then you need to look up ‘regulated buy-to-let mortgages’.  These are relatively new products for precisely your situation.  They will look at your proposed way of paying the rent.  However be warned as niche products the interest is quite high.

If you are well off enough you can look at second residential mortgage.  These are stricter than standard mortgage and you cannot use your parents contribution as income for affordability checks.  

I am not an expert, but I have a feeling regulated buy to let mortgages will still need your parent declare the contribution as taxable rent.  So you will be paying tax both ways.

With second residential mortgage essentially you can let your parents live there for free.  Then your parent can ‘gift’ you the mortgage contribution out of free will (legally not obliged).

Thrugelmir

Why don't you want to sell your existing parents house? Would simplify matters greatly. 

Familyman01

I am hopeful that my income will be enough to cover both mortgages in terms of affordability, so I will look at the second residential mortgage, thanks Tim. I suppose my parents will have to pay tax on the rental income of the house they own? They are working (for now anyway).

I don’t really want to sell the existing house for a few reasons:

- who knows what can happen, I think they will want the security that they ‘own’ a house that is paid off. If they sell their house, the equity will be in a house that they don’t own, what if something happened me and I couldn’t pay the mortgage payment? I suppose I would have mortgage cover, and I am well protected, but I am not sure they would want to give it up. 

- seemed most sensible option to me, have one asset generating cash to help pay the other one off

Thoughts welcome!!