Helping my partner to buy his first property - Best way ?

tumafic53

I would like to help my partner buying his first property so his mum can live there rent free (only paying the bills). We are looking at properties around £250k.

Our situation is the following : My partner and I are unmarried. I own 2 properties (both with mortgages): the one we currently live in and a rented property abroad.

I would like to help him with the deposit and/or with mortgage affordability. I do not want to make any profit (at resell) but ideally would like my money back/secured especially if something goes wrong between us.

I have been researching/thinking of the best way for months and below are the 2 options I can think of (Option1 having my preference so far). I would be very grateful to have views/comments on what’s best + if I missed anything.

Option 1 :

-        Buying it under a tenancy in common with a 20% deposit (80% from me / 20% from him). Mortgage in both our names but actual repayment 99% from him / 1% from me

-        Have a Declaration of trust stating the above + stating that, in case of resell, he would own 100% of shares after repaying my deposit.

-        I am aware that I would be fully liable for the mortgage in case he does not pay, we would need to pay the 3% extra stamp duty because of my other properties, and he would lose his 1st time buyer rights.

-        Remaining questions I have: Would that be considered as a buy to let from a mortgage point of view ? Would the lender see the declaration of trust and could they disagree with this kind of arrangement ? what about CGT in case of resell ? 

Option 2 :

-        I buy the property in my name (with a mortgage under my name only)

-        For a few years, he gives me the money needed to pay the mortgage.

-        In a few years (when he can afford it), I sell the property to him at a lower price than the initial one (to take into consideration what he gave me over the years).

-        I assume that his monthly contribution to my mortgage would be considered as income for me (so 40% tax)... would there be a way to avoid that ? Could the lower price at resell be justified to HMRC based on this arrangement ?

Many thanks in advance for your advices

K_S

@tumafic53 Comments limited to the mortgage - you could consider a joint interest-only regulated BTL mortgage. These allow immediate family members to reside in the property. Affordability will be based on your incomes and current outgoings plus financial commitments.

tumafic53

Thank you very much. Would that be necessary even if my partner's mum does not pay any rent ? 
Could we avoid it if my partner was officialy declared as living there ? 
Many thanks,

user1977

tumafic53 said:

Could we avoid it if my partner was officialy declared as living there ? 

Not if he's not actually going to be living there, no.

tumafic53

Thank you. 
Since we don't intend to rent it and since affordability should not be a problem in my case, should we simply go for a second property residential mortgage ? It seems to be a better option than BTL (or regulated BTL).
Thanks again,

badger09

tumafic53 said:

Thank you. 
Since we don't intend to rent it and since affordability should not be a problem in my case, should we simply go for a second property residential mortgage ? It seems to be a better option than BTL (or regulated BTL).
Thanks again,

You can't 'go for a second property residential mortgage' because neither of you will be living in the property. If you do apply on that basis, you will be committing mortgage fraud.

K_S

tumafic53 said:

Thank you. 
Since we don't intend to rent it and since affordability should not be a problem in my case, should we simply go for a second property residential mortgage ? It seems to be a better option than BTL (or regulated BTL).
Thanks again,

@tumafic53 In principle yes, with a lender that permits second homes being used for dependents/family to live in. This will usually be subject to LTV caps in the region of 70-80%.

tumafic53

K_S said:

tumafic53 said:

Thank you. 
Since we don't intend to rent it and since affordability should not be a problem in my case, should we simply go for a second property residential mortgage ? It seems to be a better option than BTL (or regulated BTL).
Thanks again,

@tumafic53 In principle yes, with a lender that permits second homes being used for dependents/family to live in. This will usually be subject to LTV caps in the region of 70-80%.

Clear thank you... that's one question less in my mind !

lonibra

tumafic53 said:

Thank you. 
Since we don't intend to rent it and since affordability should not be a problem in my case, should we simply go for a second property residential mortgage ? It seems to be a better option than BTL (or regulated BTL).
Thanks again,

Been there, done that. As the MB above has said, you just need a bank that allows the second house to be used for parents to live in and a sizeable enough deposit to meet the criteria. Lots of smaller building societies offer these mortgages. Mine needed a 25% deposit. 

Ideally if you can combine it with a JBSP and use a bank that allows you to put a second charge on the property to protect your share of the deposit, that would save you the 3% sdlt surcharge. But by then that's a lot of boxes to tick so I don't know if any bank will lend.