Buying house for CASH from Son-Letting it out to His ex-Subsidized rent.

[Deleted User]

blindman said:

getmore4less said:

Does the private mortgage really solve the problem? 

With the buy and rent back you have the rental income and the potential for the value of the house to grow.

You effectively lend the ex £147k and come to some arrangement on a payment plan.
You are going to have to charge interest for it to be viable and may never see your money back in your lifetime.

Interest will be taxable as income and less than you could get in rent.

What can they afford a month?

Actually  it does not solve the problem.
Apart from the pitfalls as outlined above:
The Ex cannot afford the mortgage and and she will get no benefits towards it.
At the minute she pays £300 ish per month for her half of the mortgage.
If she rents she will get benefits for the rent.

The ex won't get any benefits towards the rent whilst she has savings of £16,000+.  She will be expected to use those savings to fund herself and once they have dwindled she still might not be entitled to help towards the rent if it is deemed a contrived tenancy.

I mentioned the pitfalls of sale and rent back on the first page, an activity that is regulated by the FCA.
https://www.handbook.fca.org.uk/handbook/PERG/1/?view=chapter

With the private mortgage you could look into doing something like an equity loan where the loan is based on the value of the property rather than just a straight £X.  

Maybe you need to separate the idea of having an investment property and helping out your son and his ex.  I think you can help out your family but it won't be a good investment for you.

blindman

MovingForwards said:

Having £30k from the sale would rule her out for most benefits and she would be expected to use that to pay her rent, bills and everything else.

Why don't you wait and see what happens in a few months before making any decision.

With the private mortgage any conveyancing solicitors can do it. 

I will wait a few months to see what happens, just getting idea now.

getmore4less

Lover_of_Lycra said:

blindman said:

getmore4less said:

Does the private mortgage really solve the problem? 

With the buy and rent back you have the rental income and the potential for the value of the house to grow.

You effectively lend the ex £147k and come to some arrangement on a payment plan.
You are going to have to charge interest for it to be viable and may never see your money back in your lifetime.

Interest will be taxable as income and less than you could get in rent.

What can they afford a month?

Actually  it does not solve the problem.
Apart from the pitfalls as outlined above:
The Ex cannot afford the mortgage and and she will get no benefits towards it.
At the minute she pays £300 ish per month for her half of the mortgage.
If she rents she will get benefits for the rent.

The ex won't get any benefits towards the rent whilst she has savings of £16,000+.  She will be expected to use those savings to fund herself and once they have dwindled she still might not be entitled to help towards the rent if it is deemed a contrived tenancy.

I mentioned the pitfalls of sale and rent back on the first page, an activity that is regulated by the FCA.
https://www.handbook.fca.org.uk/handbook/PERG/1/?view=chapter

With the private mortgage you could look into doing something like an equity loan where the loan is based on the value of the property rather than just a straight £X.  

Maybe you need to separate the idea of having an investment property and helping out your son and his ex.  I think you can help out your family but it won't be a good investment for you.

That is a beneficial interest so SDLT for second properties comes back into the numbers.

blindman

Lover_of_Lycra said:

blindman said:

getmore4less said:

Does the private mortgage really solve the problem? 

With the buy and rent back you have the rental income and the potential for the value of the house to grow.

You effectively lend the ex £147k and come to some arrangement on a payment plan.
You are going to have to charge interest for it to be viable and may never see your money back in your lifetime.

Interest will be taxable as income and less than you could get in rent.

What can they afford a month?

The ex won't get any benefits towards the rent whilst she has savings of £16,000+.  She will be expected to use those savings to fund herself and once they have dwindled she still might not be entitled to help towards the rent if it is deemed a contrived tenancy.

I mentioned the pitfalls of sale and rent back on the first page, an activity that is regulated by the FCA.
https://www.handbook.fca.org.uk/handbook/PERG/1/?view=chapter

With the private mortgage you could look into doing something like an equity loan where the loan is based on the value of the property rather than just a straight £X.  

Maybe you need to separate the idea of having an investment property and helping out your son and his ex.  I think you can help out your family but it won't be a good investment for you.

So how does my son and  his ex make the transition from:-
Owning a £180K value house with £114 outstanding, each paying circa£300 per month to a mortgage lender.
To
Me being the mortgage lender to his ex, with son being given his equity from the change and his Ex possibly getting her equity?
Thanks

blindman

MovingForwards said:

Having £30k from the sale would rule her out for most benefits and she would be expected to use that to pay her rent, bills and everything else.

Why don't you wait and see what happens in a few months before making any decision.

With the private mortgage any conveyancing solicitors can do it. 

So the way I see the private mortgage is that effectively I lend £xxxK to his Ex, she pays me back at some rate I decide.

The end result is that I get "interest" on the loan over a long period, better than a saving s account, she is investing in a house .

Bad thing is I am 65 so may never get the full amount back, and as she cannot afford to pay full amount on such a mortgage (unless she gets equity somehow from the transition) I'm giving her ( and the grandkids) money. This in the grand scheme of things would be their inheritance, so no major issues.

Surely renting would be better for me?

MovingForwards

At some point the ex will be working, can remortgage the house and repay you the outstanding balance.

Other ways to look at it:

You do a private mortgage for £144k, agree £400 pm mortgage payment, in 5 years time £24k has been paid back, she remortgages and pays you the outstanding £120k.

Rent £400pm, 5 years time you've have £24k, less taxes, less LL obligations etc. Plus the added quirks of the ex not being able to claim benefits until the £30k is down to £16k and complications because of renting from 'family' and renting the property she used to own.

You are 65, not 85, potentially at least another 20 years ahead of you. The golden years you've worked so long for and waited to have your days to yourself.

It seems like you've decided you want to buy and rent back, nothing anyone will say will change that.

blindman

MovingForwards said:

It seems like you've decided you want to buy and rent back, nothing anyone will say will change that.

No, I have not decided anything. I appreciate all the advice and as I have never thought of this mortgage route just want to understand it more and what scenarios could happen.

How does my son get the equity from the house so he can move on?
Does the Ex get her equity ?
Thanks for your input.

wilfred30

AnotherJoe said:

wilfred30 said:

Another thing that may come back to bite you on the backside in the future is Deprivation of Assets.  I'm sure you'll say that you and your wife are nowhere near the stage of having to consider the possibility of having to pay care costs but nobody knows what the future holds.  Just sayin ...................

Ridiculous statement.  

The OP is buying a house not giving money or assets away. 

Yes, you're right    I thought about it afterwards and meant to come back and delete my post but forgot.

Mgman1965

I'm no expert, but just my thoughts.

I'd caution against the "I'm in great health" statement, I work in healthcare and believe me, it's not just dementia that puts older people in long term nursing /care homes, falls, strokes and many others do.

Should this happen to either of you the house would have to be sold to fund, putting you,or son/daughter in the horrible position of having to,

1/ Evict ex DIL and sell for max value with vacant possession.

2/ Sell with her as sitting tenant at possibly a lot less than 1's value, knowing new landlord will not be charitable, and will up rent to full market, and if Ex DIL + children cannot afford (as you say), will again end up being evicted.

It sounds very admirable but has many pills ahead possibly.

letsbetfair

blindman said:

MovingForwards said:

It seems like you've decided you want to buy and rent back, nothing anyone will say will change that.

No, I have not decided anything. I appreciate all the advice and as I have never thought of this mortgage route just want to understand it more and what scenarios could happen.

How does my son get the equity from the house so he can move on?
Does the Ex get her equity ?
Thanks for your input.

If you're giving the ex a mortgage,you could choose to make this large enough that it will let her buy your son out (giving him his equity). You could also ask him if he'd agree some other arrangement.
Depending how much means-tested tested benefits the ex gets, it might be in her interest to keep it in the house (otherwise she'll have to spend a lot of it to compensate for reduced benefits). Worth remembering that, if you offer her a mortgage, someone will need £s to fund repairs and home maintenance though.
I wonder if it'd be worth paying a couple of hundred for a session with an IFA with estate management experience? It's great that you can be so generous, but it might help to talk through your options with someone. Also, you've talked to your ex and the son about what they want?