Shared Ownership Student Flat

TcT3

We have a daughter in her first year of University, currently living in University accommodation. Next year she'll have to move out into a privately rented place. 
Her grandmother has £65k that she would be prepared to put towards the purchase of a studio flat (market cost £90- £95k) Her mum and I would need to take a second mortgage (buy to let?) for the remaining £30k - which over a 10-15 year term with maintenance charges on top would still be equal or less than private rent.
Gran wants (and we are happy) to protect her capital so should she need to go into a home or require care we could sell the flat and pay it back. Does anyone know if it's possible to structure such an arrangement? Could we start a Ltd Property co and run it thought that with Gan and us as shareholders 65:35 ownership and the company taking the mortgage ? Or should we just keep it simple and line the pocket of another private landlord?

Pixie5740

TcT3 said:

We have a daughter in her first year of University, currently living in University accommodation. Next year she'll have to move out into a privately rented place. 
Her grandmother has £65k that she would be prepared to put towards the purchase of a studio flat (market cost £90- £95k) Her mum and I would need to take a second mortgage (buy to let?) for the remaining £30k - which over a 10-15 year term with maintenance charges on top would still be equal or less than private rent.
Gran wants (and we are happy) to protect her capital so should she need to go into a home or require care we could sell the flat and pay it back. Does anyone know if it's possible to structure such an arrangement? Could we start a Ltd Property co and run it thought that with Gan and us as shareholders 65:35 ownership and the company taking the mortgage ? Or should we just keep it simple and line the pocket of another private landlord?

Does your daughter want to live in a studio by herself next year? Will she want to live in the same town/city when she graduates? 

You’ll struggle to get a BTL mortgage with someone else supplying the deposit who wants a beneficial and legal stake in the property. Setting up a limited company to buy a studio doesn’t seem like a great idea and studio flats aren’t great in terms of investment. 

user1977

Would your second mortgage need to be secured over the new flat? Would be simpler if you can borrow against an existing property and then make a cash purchase - gran contributing her money via a secured loan (unless she actually wants the benefits/risk of being a co-owner?).

eddddy

You mention 'shared ownership'...

Just to be clear - are you talking about a 'regular' studio flat that you would be buying 100% of between you?

When people talk about 'shared ownership', they usually mean something else.

So it's not a 'creative' shared ownership scheme that a developer or financial organisation is offering you? 

And you're not talking about specialist student accommodation that's just been built/converted by a developer? It's just a standard studio flat, that a student or non-student might want to live in.

TBagpuss

The simplest way to do it is likely to be for you to borrow the £30K against your current property, then buy the flat outright, and have a secured loan in Gran's favour to protect her investment. You and she would need to get separate legal advice and would need to decide whether she was lending £65K and getting back £65K plus interest or if she was lending 65K and getting back a sum equal to 68% of the flat's value , and building in provisions for what triggers repayment.

A lot of student prefer to stay with friends and a larger property may be more saleable so if you can stretch to a 2 or 3 bed then that might be a better option long term.

As others have said, consider whether your daughter will want to live alone and whether the location is a suitable one for investment - and infeed whether you want to become a landlord and have the equal responsibilities involved, for a property which is presumably quite distant from you  

TcT3

Thanks for the responses.
Answers to a the questions raised:
1. She is currently evaluating whether she want to live with a group or alone in the second / third years (she is very mature and self contained and not much of a party animal (must have been swapped at birth as she is nothing like mum and dad...). If she want to move into a standard shared house we'll support and fund her.
2. We'd either look at letting out or just sell again after 2 years, it's not really about "The investment opportunity" rather should we just pay a mortgage for 2 years which should generate a little equity unless there is a major crash vs pay more for a private landlord. More like a saving scheme assuming we could sell it for what we bought it for.
3. It's a regular studio flat (no cladding issues) marketed at young professions.

Taking the extra equity on our current property would certainly be possible. There is no expectation of a return on investment from my mum, she does not expect to need the money, she offered it, I'm pushing her to only do it if we can give her peace of mind that should a unexpected situation arrise we'd sell in a heart beat if she needed us to.  
In fact if we borrowed the 30K could I just give that to my mum to buy it outright in her name? _ I'd be risking £30k obviously and she might leave it to the dogs home or directly to the grandchild but in the grand scheme of things that's a gamble I could risk. 

user1977

TcT3 said:

In fact if we borrowed the 30K could I just give that to my mum to buy it outright in her name? 

Yes, you can do it either way round (or buy it in joint names with your mum) - the main complication would be if you actually needed a mortgage over the flat (as lenders don't like studio flats, or elderly borrowers, or family as tenants, or other secured loans, etc) but sounds like that isn't an issue.

Annisele

TcT3 said:

Or should we just keep it simple and line the pocket of another private landlord?

If I was in your shoes, I'd very much be going with "yes, keep it simple" and just rent. Clearly I'm not in the same situation you are, but in case they're helpful I'll give you the reasons I wouldn't touch this arrangement with a bargepole:

• There are apparently two problems here: one is that your daughter needs somewhere to live, and the other is that your daughter's grandmother wants somewhere to put her capital. There's no obvious reason why those two problems should have the same solution.
• It doesn't sound as though grandmother is even wanting to make a profit - "there is no expectation of a return on investment from my mum". So the benefit to grandmother is - ???.
• You say that you'd sell immediately if grandmother wanted her money back, but in practice it's likely to be impossible to sell immediately. It usually takes a few months to get a sale through even in a super hot market. But if the market does turn, studio flats are likely to be the hardest to shift.
• What is the plan for the flat after your daughter moves out? If the plan is to sell after two years, you might well find that the costs involved in buying and selling are much greater than any profit you've made. If the plan is to keep the flat and continue to let it out, then you'll have to hope that the flat that's best for your daughter to live in is also the best for long term rental. That strikes me as unlikely.
  
• Any kind of mortgage over the studio flat is likely to be difficult to obtain. Partly because it's a studio flat, and many lenders are become allergic to them. The family relationship also means you'd likely need a regulated buy-to-let rather than an ordinary one. And as others have said, any kind of mortgage on a property that somebody else (gran) will have an interest in is going to be super tricky.
• There are going to be tax issues of some kind here. Possibly extra SDLT because this is a second property for someone, or maybe CGT if there's a gain when you sell, or maybe IHT if you give your mum a gift and end up increasing the size of her estate in so doing. Tax issues don't mean you shouldn't do it - there's saying that "the tax tail shouldn't wag the investment dog" - but they're worth taking into account.
  

dimbo61

Why do so many Parents come up with this idea each year.
The buying and selling costs of owning a studio flat for only 2 years are highly likely to cost more than any increase in value.
Who will want to buy a 2 year old studio flat off you when the developer might be offering lots of incentives to buy NEW.
Now if you child was on a 5 year course to become a doctor or planned on staying in the University City afterwords great ? 

rexmedorum

TcT3 said:

We have a daughter in her first year of University, currently living in University accommodation. Next year she'll have to move out into a privately rented place. 
Her grandmother has £65k that she would be prepared to put towards the purchase of a studio flat (market cost £90- £95k) Her mum and I would need to take a second mortgage (buy to let?) for the remaining £30k - which over a 10-15 year term with maintenance charges on top would still be equal or less than private rent.
Gran wants (and we are happy) to protect her capital so should she need to go into a home or require care we could sell the flat and pay it back. Does anyone know if it's possible to structure such an arrangement? Could we start a Ltd Property co and run it thought that with Gan and us as shareholders 65:35 ownership and the company taking the mortgage ? Or should we just keep it simple and line the pocket of another private landlord?

Wait wat? mortgage on 30k + maintanance charges are as much as private rent? That doesn't add up, what's the private rent and what are the maintanance charges? Hvae you checked how much a BTL mortgage would be? What about a interest free one?

Pixie5740 said:

TcT3 said:

We have a daughter in her first year of University, currently living in University accommodation. Next year she'll have to move out into a privately rented place. 
Her grandmother has £65k that she would be prepared to put towards the purchase of a studio flat (market cost £90- £95k) Her mum and I would need to take a second mortgage (buy to let?) for the remaining £30k - which over a 10-15 year term with maintenance charges on top would still be equal or less than private rent.
Gran wants (and we are happy) to protect her capital so should she need to go into a home or require care we could sell the flat and pay it back. Does anyone know if it's possible to structure such an arrangement? Could we start a Ltd Property co and run it thought that with Gan and us as shareholders 65:35 ownership and the company taking the mortgage ? Or should we just keep it simple and line the pocket of another private landlord?

Does your daughter want to live in a studio by herself next year? Will she want to live in the same town/city when she graduates? 

You’ll struggle to get a BTL mortgage with someone else supplying the deposit who wants a beneficial and legal stake in the property. Setting up a limited company to buy a studio doesn’t seem like a great idea and studio flats aren’t great in terms of investment. 

From what  I understand (but I'm not a landlord) not many buy to let mortgages would let you rent to a close relative, so that would be something to check as well.

dimbo61 said:

Why do so many Parents come up with this idea each year.
The buying and selling costs of owning a studio flat for only 2 years are highly likely to cost more than any increase in value.
Who will want to buy a 2 year old studio flat off you when the developer might be offering lots of incentives to buy NEW.
Now if you child was on a 5 year course to become a doctor or planned on staying in the University City afterwords great ? 

Ow .. stamp duty, you'd have to pay that (as second home).

Pixie5740

@TcT3 I cannot believe that buying a studio flat for 2 years works out less expensive than renting for 2 years.