I am Buying a house, then renting it back to the seller

terrymoneysavingexpert

Hi
I am thinking of buying a house, then renting it back to the seller.
We will be doing a new contract for the new rental and the seller is on benefits and claiming universal credit including rent allowance.
Are there any pitfalls I should look out for or does anyone have any experience of something similar.
Thanks Terry

babyblade41

Af the seller is a family member they probably won't be able to claim benefits 

SDLT_Geek

You are registered under the financial services legislation for doing a "sale and rent back"?  See 14.5 of this https://www.handbook.fca.org.uk/handbook/PERG/1/?view=chapter 

2bFrank

Are you buying as an investment. I would do the usual checks to the tenants that I would for anyone else (credit, affordability etc). 

I have to be honest though, I would question why they are selling it, no one sells their house to then rent unless they have too, sometimes its legitimate (moving away from area for job, living in a studio and need a bigger house for increasing family) sometimes its to pay off large amounts of debt.

If the vendor wants to stay in the house, then it sounds like it could be due to money worries and I would be very wary of this, if they are not able to budget correctly to keep a mortgage then its going to be worse to keep to a budget for rent, this could leave you in a difficult situation.

If you are happy that they can afford the rent, then I would rely on your solicitor here and get the proper contracts drawn up. Other than that, as long as you are getting a buy to let mortgage, then there is nothing wrong with buying a property with a tenant in situ, I guess this would be a similar situation.

The other question would be the sale money, if they have a large equity in the property then the seller might be going over the saving allowance for benefits and will be unable to claim any more until they are under the allowance.

terrymoneysavingexpert

Hi
Thanks for your advice.
It is an old and dear friend who is in trouble, not related.  I am not doing it for financial gain, but I don't want to lose any money.
I was hoping that I could buy the house then rent it back on a normal tenancy, but she would need to claim her rent back as on benefits.
I have read that you are not allowed to claim benefits for rent on a house you have previously owned, but then I have also read that you might be allowed if it is the only way to stay in their home.
I am looking for some comments from anyone who has tried it please.
Thanks Terry

Comms69

Terrible idea - don’t do it. 

Better off just giving her some cash as a loan; exactly the same likelihood of getting it back with less tax to worry about 

eddddy

SDLT_Geek said:

You are registered under the financial services legislation for doing a "sale and rent back"?  See 14.5 of this https://www.handbook.fca.org.uk/handbook/PERG/1/?view=chapter 

Just to emphasise SDLT_Geek's comment - you have to be regulated and monitored by the Financial Conduct Authority (FCA) in order to do Sale and Rent Back (even as a sole trader).

If you do this and you're not registered with the FCA, you're breaking the law.

And even if you are regulated by the FCA, here's a news story about a 'Sale and Rent Bank' sole trader who was fined £945k by the FCA for misleading clients about the value of their homes etc. So be careful! https://www.ft.com/content/96a67f90-d8d2-11e2-84fa-00144feab7de

Having said that, in 2012, the FCA closed down every 'sale and rent back' firm that existed - presumably because they were all unfit.

This website suggests that by 2019, still no regulated businesses existed - so unless you got regulated in the last few months, I'm guessing you're not actually regulated. https://www.theadvisory.co.uk/sell-house-fast/sale-and-rent-back-schemes/

Caz3121

terrymoneysavingexpert said:

I have read that you are not allowed to claim benefits for rent on a house you have previously owned, but then I have also read that you might be allowed if it is the only way to stay in their home.

have repossession steps commenced? how far are they in arrears?

Ratkin007

terrymoneysavingexpert said:

Hi
I am thinking of buying a house, then renting it back to the seller.
We will be doing a new contract for the new rental and the seller is on benefits and claiming universal credit including rent allowance.
Are there any pitfalls I should look out for or does anyone have any experience of something similar.
Thanks Terry

if the seller owns the property how are they claiming rent allowance. as someone has said, if there is a lot of equity then it will impact on the seller's benefits.

terrymoneysavingexpert

Hi all
thanks it looks like a minefield.
If I pay her monthly mortgage can I take a charge on her house so that the amount is repaid to me when she sells the house.
I could just add 2% interest to cover my costs.
Thanks Terry

xylophone

The friend has a mortgage and the mortgagee has a first charge on the property.

In theory, you could make the friend a loan and (if the mortgagee agreed), take a second charge on the property.

Presumably your legal agreement with the friend would be that the interest rate would "roll up" to be paid with the capital on sale of the property.

This would have tax implications for you in the year of receipt.