Buying My Parents' House and Renting Back to Them

richm86

Hi. Was looking for some advice please on buying my parents’ house from them as they’ve got themselves into a bit of a pickle.

Parents purchased their house for £175k in 2008. Unfortunately they took out an interest only mortgage and never changed it. They have £145k left to pay on their mortgage which runs out in 2.5 years. As they are aged 72 and 64 they will not be able to get a new mortgage deal and don’t have enough savings to pay it off. 

Is it possible I buy the house from them and take out a 25 or 30 year mortgage on the house (I am 38)? Then they keep living in it and pay me the mortgage amount and they will continue to pay all the bills? I have £40 to £50k spare in savings I can use for deposit and associated fees.

I was just wondering what the implications of this would be.

The house is now worth around £210k. Am I able to purchase the house for the £145k left on the mortgage or the £175k it was originally purchased for? Or are there tax/other implications due to me purchasing for less than market value?

Can I let the property to my parents at the rate of the mortgage, for example £600 a month? The market rate of the property for rental would probably be around £900 a month.

I am assuming I would need a buy-to-let mortgage. After my current mortgage and all bills/food etc I still have about £1000 spare each month so should hopefully be accepted for a buy-to-let mortgage? I guess I would also need to pay tax on this rental income?

I understand as this will be a second property I will be liable to pay around £5250 stamp duty (based on purchase price of 175k).

What would be the best way to go about all this? I assume it would be best to go to a solicitor/mortgage broker but just wanted to get some advice first.

Any advice would be greatly appreciated.

theartfullodger

Mortgage ends or just ends initial interest rate?

I got a mortgage aged iirc 70, expiring at age 80.  Check with brokers . Now repaid - but have another ending age 80 - currently I'm 76.

Many landlords (not all) including me consider renting to friends or family a v bad idea - usually quickest way to ruin relationships and upcoming Xmases...

Grumpelstiltskin

Do they claim any means tested benefits?

If so renting from family tends to be a no no.

housebuyer143

Because you are renting to family not many lenders allow this on a BTL mortgage so you might find it harder than you think. I believe it becomes a regulated BTL and is subject to different checks and requirements. I would speak to a broker who can advise if there is a lender who allows this.

With regards to the PP, you could normally use the discount as the deposit, but again lots of lenders don't like this and don't allow inter family transactions. 

BTL are normally self supporting so the loan you get is based entirely on the rent you can achieve, and I imagine your parents are not paying you in excess of £1000 rent? If so, you are not likely to get a BTL mortgage on this. 

Speak to a broker and flesh it out and they can tell you if it's going to work.

richm86

Grumpelstiltskin said:

Do they claim any means tested benefits?

If so renting from family tends to be a no no.

At the moment they are both still working and are taking in net around £5k per month between them. My father will have to retire soon and take his pension though. 

propertyrental

Where do you live? Own your own property?  So additional SDLT for 2nd property purchase.

Do you want to be a landlord? Know what's involved? Quite apart from artfullodger's point about renting to family there are significant legal responsibilities, income tax on the rent etc, and missing some of these can be a criminal offense.

What about lending them the money so they have an increase deposit to get a short term mortgage? Tey need to speak to a broker.

theartfullodger

richm86 said:

Grumpelstiltskin said:

Do they claim any means tested benefits?

If so renting from family tends to be a no no.

At the moment they are both still working and are taking in net around £5k per month between them. My father will have to retire soon and take his pension though. 

Have to retire - job enforced retirement or medical/personal choice?

State pension or private pension?

State pension brings 6 benefits.. pension, free eye tests, winter fuel allowance, 'bus pass, £10 xmas bonus, free prescriptions. (thank you you generous taxpayers you, I'm 76).  Prescriptions probably saving me a lot of £££££

p00hsticks

theartfullodger said:

richm86 said:

Grumpelstiltskin said:

Do they claim any means tested benefits?

If so renting from family tends to be a no no.

At the moment they are both still working and are taking in net around £5k per month between them. My father will have to retire soon and take his pension though. 

Have to retire - job enforced retirement or medical/personal choice?

State pension or private pension?

State pension brings <snip> .....free prescriptions. (thank you you generous taxpayers you, I'm 76).  Prescriptions probably saving me a lot of £££££

Taxpayers in all countries are even more generous when it comes to prescriptions - free from the age of 60 in England and free for everyone registered in Wales, Scotland or Northern Ireland

macman

Yes, you will need to declare the rental income for tax, and also comply with the many onerous duties of an LL.
GSC, EICR, EPC, deposit protected, LL licencing (if applicable in the area), and dozens of others. You can manage it through a agent (for a fee), but you remain legally responsible for all this regardless.

Bookworm105

there are significant personal tax implications of your plan, best take professional advice 
- parents would not be paying rent at market rate so exposes them to IHT implications when they die 
- they would have sold at a discount to a "connected person" (CGT implications)
- you will have a rental income and be liable for income tax on that, so will need to do a tax return. Crucially you will not get £ for £ tax relief on the mortgage cost, so could end up paying tax on a "paper profit"
 - higher rate SDLT on purchase 

None of the above prevent you from helping your parents, but you need more than an internet forum to understand the detailed implications 

theartfullodger

And CGT when eventually selling the place, (currently) to be declared and paid within 60 days so file all those documents, valuations, invoices etc etc...