Shared Ownership Student Flat

TcT3

Pixie5740 said:

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

Like for like studio £169/week
Shared house of 5 £390 / month 
Let's assume you can rent for 36 weeks only which give £3510-£6084 PA X 3= ( should have mentioned it was a 4 year course, sorry!) = £10,530 - £18,252
Vs
£30k over 10 years @3.3% = roughly £295 / month x 36 = £10,530
+Service charge £1650 PA x 3 = £4950
Total = £15,480 

Say I resell in year 3 and make a 20% loss on the property (reasonably pessimistic?) I get back £24K, it's cost me +/-£6k to house her.

This also assumes she does not stay on in the city and get a job (not beyond the realms by any means as home is rural with poor prospects) It also provides the opportunity for her to stay in the city during the summer and work a better paid temp job than she can get back home.

TcT3

Annisele said:

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.

• Benefit to Gran is we as a family are investing rather than just putting £10-£15k in someone else's pocket

• "Immediately" is relative - the sort of scenario that would trigger it would be say if mum was diagnosed with dementia, it would not become critical overnight to get  the funds back, but if she was going to eventually need more care than we could provide, we'd free up the money to protect her primary home.

• Should have mentioned her course is 4 years 

• I factored in £20% loss on the property in the figures below - which should allow for a quick sale in all but a really bad scenario

Looking at it, I've got enough equity in my house to access the £30k without needing a buy to let, I'd give her the money let her buy outright and ideally gift me 30% equity, that way, hopefully if she lives another 7 years we escape IHT on the 30%.

Lunchbox

TcT3 said:

Pixie5740 said:

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

Like for like studio £169/week
Shared house of 5 £390 / month 
Let's assume you can rent for 36 weeks only which give £3510-£6084 PA X 3= ( should have mentioned it was a 4 year course, sorry!) = £10,530 - £18,252
Vs
£30k over 10 years @3.3% = roughly £295 / month x 36 = £10,530
+Service charge £1650 PA x 3 = £4950
Total = £15,480 

Say I resell in year 3 and make a 20% loss on the property (reasonably pessimistic?) I get back £24K, it's cost me +/-£6k to house her.

This also assumes she does not stay on in the city and get a job (not beyond the realms by any means as home is rural with poor prospects) It also provides the opportunity for her to stay in the city during the summer and work a better paid temp job than she can get back home.

Have you factored in ground rent? Legal fees for buying then selling probably £6k for a leasehold property. Then nearly £6k for stamp duty. The service charges will also increase over the period (potentially substantially with the constantly changing fire regs and new reports/certificates being required), and there’s the possibility of major works that can come out of the blue. 

Pixie5740

Lunchbox said:

TcT3 said:

Pixie5740 said:

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

Like for like studio £169/week
Shared house of 5 £390 / month 
Let's assume you can rent for 36 weeks only which give £3510-£6084 PA X 3= ( should have mentioned it was a 4 year course, sorry!) = £10,530 - £18,252
Vs
£30k over 10 years @3.3% = roughly £295 / month x 36 = £10,530
+Service charge £1650 PA x 3 = £4950
Total = £15,480 

Say I resell in year 3 and make a 20% loss on the property (reasonably pessimistic?) I get back £24K, it's cost me +/-£6k to house her.

This also assumes she does not stay on in the city and get a job (not beyond the realms by any means as home is rural with poor prospects) It also provides the opportunity for her to stay in the city during the summer and work a better paid temp job than she can get back home.

Have you factored in ground rent? Legal fees for buying then selling probably £6k for a leasehold property. Then nearly £6k for stamp duty. The service charges will also increase over the period (potentially substantially with the constantly changing fire regs and new reports/certificates being required), and there’s the possibility of major works that can come out of the blue. 

SDLT would only be £2850 on the property but you’re right the OP doesn’t appear to have included SDLT or the other costs of buying and selling in the calculations which are usually the reasons renting works out less expensive than buying over shorter <5 years periods. 

rexmedorum

TcT3 said:

Pixie5740 said:

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

Like for like studio £169/week
Shared house of 5 £390 / month 
Let's assume you can rent for 36 weeks only which give £3510-£6084 PA X 3= ( should have mentioned it was a 4 year course, sorry!) = £10,530 - £18,252
Vs
£30k over 10 years @3.3% = roughly £295 / month x 36 = £10,530
+Service charge £1650 PA x 3 = £4950
Total = £15,480 

Say I resell in year 3 and make a 20% loss on the property (reasonably pessimistic?) I get back £24K, it's cost me +/-£6k to house her.

This also assumes she does not stay on in the city and get a job (not beyond the realms by any means as home is rural with poor prospects) It also provides the opportunity for her to stay in the city during the summer and work a better paid temp job than she can get back home.

wait hang on your mortgage is a repayment mortgage, that money you'll get back when you sell, it's a fairer comparisson to look  only at the mortgage interest.

A quick search shows interest only BTL mortgages for £30k on a property worth £95k is about £33/month  with a 2 year fix @ 1.1%

A 20% loss seems overly pessemistic, but it would help if you can be in it for a bit longer than just the 3 years.

Personally I would just rent if it's just for 3 years, as it's much easier even if it is a bit more expensive.

Lunchbox

Pixie5740 said:

Lunchbox said:

TcT3 said:

Pixie5740 said:

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

Like for like studio £169/week
Shared house of 5 £390 / month 
Let's assume you can rent for 36 weeks only which give £3510-£6084 PA X 3= ( should have mentioned it was a 4 year course, sorry!) = £10,530 - £18,252
Vs
£30k over 10 years @3.3% = roughly £295 / month x 36 = £10,530
+Service charge £1650 PA x 3 = £4950
Total = £15,480 

Say I resell in year 3 and make a 20% loss on the property (reasonably pessimistic?) I get back £24K, it's cost me +/-£6k to house her.

This also assumes she does not stay on in the city and get a job (not beyond the realms by any means as home is rural with poor prospects) It also provides the opportunity for her to stay in the city during the summer and work a better paid temp job than she can get back home.

Have you factored in ground rent? Legal fees for buying then selling probably £6k for a leasehold property. Then nearly £6k for stamp duty. The service charges will also increase over the period (potentially substantially with the constantly changing fire regs and new reports/certificates being required), and there’s the possibility of major works that can come out of the blue. 

SDLT would only be £2850 on the property but you’re right the OP doesn’t appear to have included SDLT or the other costs of buying and selling in the calculations which are usually the reasons renting works out less expensive than buying over shorter <5 years periods. 

Facepalm re. SDLT - I was writing quickly and being an idiot. Exactly though; and leasehold comes with so many hidden additional costs/risks compared to a freehold property. It equates to quite a gamble over such a short term.

bbat

I know this isn't what you asked but as others have said, is this something your daughter really wants to do? What if she feels lonely and isolated? What happens then if she wants to change to shared accommodation? Sharing can  be difficult if its not with the right people. But if she lives with people she knows who care about each other, you know that they care enough to check up on each other. Are they home etc. 

rexmedorum

bbat said:

I know this isn't what you asked but as others have said, is this something your daughter really wants to do? What if she feels lonely and isolated? What happens then if she wants to change to shared accommodation? Sharing can  be difficult if its not with the right people. But if she lives with people she knows who care about each other, you know that they care enough to check up on each other. Are they home etc. 

Also is the responsibility of looking afther the property etc. putting unnecessary preassure? Would she feel she'd have to stay in that location because of the property?
Also on another note: would she resent her parents interfering and arringing a place for her? Maybe she wants to sort this herself? 

csgohan4

barge pole for me. The old generation of thinking rent is wasted money. You are paying for a roof over your head. Do you grow your veg since it's cheaper than paying someone to grow it for you?

Buying a flat now given flats are clearly not the flavour of the year, not to mention restriction on where your Daughter will live and work. I am currently 100 miles from where I studied, I would not want to live where I studied, expensive and rip off. 

Renting gives more freedom. Flats lock you in and service and maintenance. Least a house less so a problem but more expensive generally.  

Lenders don't like to lend on BTL where tenant is a close relative. Also loaned deposit are often frowned by Lenders as well. 

Just put the money in premium bonds and save it for a rainy day if it is a gift otherwise if for investment in BTL, your grand mother should look into the pitfalls of being a LL

dimbo61

Don't know where you can get a BTL mortgage at 1.1% and don't forget the fees often 1.5/2% or minimum of £1500.
Please tell me this is a real block of flats without cladding or Fire safety issues and NOT a room ( student pod ) in a block of student flats which is unmortgageable ?
Mental Health is a big issue with students being away from home.
Sharing with other students is a right of passage.
Look at Camp American if your daughter wants to travel, my son did it for 2 summers and loved it.