Remortgaging due to crazy benefits clause

diyaddictmse

My friend is in a desperate state. He's just retired and his only income is the state pension. He's eligible for Pension Credit, but there's a clause that prevents him receiving any housing benefit. He's lived in the same house for 25 years. It's in the name of his ex-partner, who left him 7 years ago. She had an interest-only mortgage, which expires in a few months. Neither of them can afford the £60k that will then be payable.

They still get along well, and she's been charging him rent equivalent to the mortgage and bills while she rents a flat in London.

Under normal circumstances, he'd be eligible for housing benefit,  but the clause excludes anyone renting from their ex the house that they once lived in as a couple, no matter how long ago.

His ex is happy to just sell the house and give him half the proceeds, but that would leave him without a home, and not enough money to get a new one. He could rent somewhere else but he's worried about being no-fault evicted. In any case, he'd dearly like to stay where he is.

He's hatched a plan of selling to his neighbour at a vastly reduced price, on the condition that he can stay there renting it. His ex would receive half of the market value, and he'd be left with virtually nothing. That wouldn't matter to him, as he'd get to stay in the house and then be eligible for housing benefit, as he'd have a different landlord to his ex.

This plan seems barking mad to me, but I'm unable to come up with anything better. Is there any way he could get a mortgage for the remaining 60k himself, even though the house is in his ex's name? Then he could be eligible for housing benefit on the mortgage interest?

At the moment, he's left with just £200 per month after paying the rent, and this could get worse if his ex re-mortgages herself to keep the house when the existing one expires.

Are there any other options?

Thanks in advance.

silvercar

He can’t get a mortgage on a property he doesn’t own. In any case, support for mortgage interest is now limited and only paid as a loan.

if the ex remortgages and doesn’t live in the property, she will need a BTL mortgage, whether that is possible depends on the figures, one of which is the amount of rent paid. Lenders like the rental income to be much higher than just covering the mortgage, so it may not be possible.

In short, I can’t how this is workable.

diyaddictmse

@silvercar Thank you. I hadn't thought of the BTL ramifications. If the ex was so minded, could she sign over part of the house to his joint ownership, allowing him to apply for a mortgage? -say one sixth, which would be approx 60k worth.

FreeBear

diyaddictmse said: He's hatched a plan of selling to his neighbour at a vastly reduced price, on the condition that he can stay there renting it. His ex would receive half of the market value, and he'd be left with virtually nothing. That wouldn't matter to him, as he'd get to stay in the house and then be eligible for housing benefit, as he'd have a different landlord to his ex.

That wheeze smacks of deprivation of assets and possibly benefit fraud - Run it past a solicitor versed in the subject and see what they say.

_Penny_Dreadful

diyaddictmse said:

@silvercar Thank you. I hadn't thought of the BTL ramifications. If the ex was so minded, could she sign over part of the house to his joint ownership, allowing him to apply for a mortgage? -say one sixth, which would be approx 60k worth.

If his only income is the state pension there’s no way he’s getting a mortgage. Besides, he can’t get a mortgage to purchase part of a property, he’d need a joint mortgage with the ex for the whole property. 

_Penny_Dreadful

diyaddictmse said:

My friend is in a desperate state. He's just retired and his only income is the state pension. He's eligible for Pension Credit, but there's a clause that prevents him receiving any housing benefit. He's lived in the same house for 25 years. It's in the name of his ex-partner, who left him 7 years ago. She had an interest-only mortgage, which expires in a few months. Neither of them can afford the £60k that will then be payable.

They still get along well, and she's been charging him rent equivalent to the mortgage and bills while she rents a flat in London.

Under normal circumstances, he'd be eligible for housing benefit,  but the clause excludes anyone renting from their ex the house that they once lived in as a couple, no matter how long ago.

His ex is happy to just sell the house and give him half the proceeds, but that would leave him without a home, and not enough money to get a new one. He could rent somewhere else but he's worried about being no-fault evicted. In any case, he'd dearly like to stay where he is.

He's hatched a plan of selling to his neighbour at a vastly reduced price, on the condition that he can stay there renting it. His ex would receive half of the market value, and he'd be left with virtually nothing. That wouldn't matter to him, as he'd get to stay in the house and then be eligible for housing benefit, as he'd have a different landlord to his ex.

This plan seems barking mad to me, but I'm unable to come up with anything better. Is there any way he could get a mortgage for the remaining 60k himself, even though the house is in his ex's name? Then he could be eligible for housing benefit on the mortgage interest?

At the moment, he's left with just £200 per month after paying the rent, and this could get worse if his ex re-mortgages herself to keep the house when the existing one expires.

Are there any other options?

Thanks in advance.

There is nothing preventing some one claiming housing benefit or the housing element of universal credit to rent a property from an ex as long as it the tenancy has a commercial basis which this doesn’t as your friend is only paying rent equivalent to the interest only mortgage payment. I also doubt the ex has been complying with any of her responsibilities as a landlord. This sounds like a contrived tenancy in the eyes of the benefits system. 

Your friend cannot sell a property he doesn’t own to his neighbour and even if he could it sounds like another contrived tenancy just do that he can claim benefits. 

If the ex cannot afford to pay the £60k at the end of the mortgage term which must be coming up soon then the ex will have to sell or the lender will repossess. I don’t know the ex’s age but she may find it difficult to remortgage given this is not a commercially viable BTL business given she makes zero profit. 

theoretica

Did the ex-partner live in the house until 7 years ago?  That will matter for CGT. As probably would whether they are or were married.

So if they sold the property, paid off the mortgage, sorted tax, he should have over £100k to find somewhere to live, added to housing benefit a possibility for the rent portion of shared ownership?  That might be possible especially with retirement properties, depending on where in the country he needs to be.

diyaddictmse

_Penny_Dreadful said:

There is nothing preventing some one claiming housing benefit or the housing element of universal credit to rent a property from an ex as long as it the tenancy has a commercial basis which this doesn’t as your friend is only paying rent equivalent to the interest only mortgage payment. I also doubt the ex has been complying with any of her responsibilities as a landlord. This sounds like a contrived tenancy in the eyes of the benefits system. 

Unfortunately, Citizen's Advice are certain that if they used to live as a couple in the house at any point in the past, then he's ineligible for housing benefit. This is true even if the tenancy has a commercial basis. They showed him the law (2006 housing act?) and also pointed out that someone went to court over this and lost.

I should point out that he's never previously claimed any benefits, and it was me who encouraged him to go to Citizen's Advice to see if he'd be eligible for any help. I told him to be totally honest about his situation. Even CA were surprised when they found this clause. Until then they were certain he'd be eligible with just a tenancy agreement. Indeed if he were renting from anyone else, he would be.

His ex has essentially just been paying the bills for him, but I think she's had her head in the sand re all the legal/tax ramifications. He just wants to stay in his house whether he gets any help or not. They are smart people, but financially illiterate.

diyaddictmse

theoretica said:

Did the ex-partner live in the house until 7 years ago?  That will matter for CGT. As probably would whether they are or were married.

So if they sold the property, paid off the mortgage, sorted tax, he should have over £100k to find somewhere to live, added to housing benefit a possibility for the rent portion of shared ownership?  That might be possible especially with retirement properties, depending on where in the country he needs to be.

Yes, she lived in the house until 7 years ago. They never married. I did wonder about the CGT element. Presumably he'd have to pay it on his share, and she'd have to pay it based on the increase in value over the last 7 years?

Although the house is in her name, he'd have a good case for claiming half its value, since he did loads of building work on it and paid half the mortgage while they were together. This could be one reason why she's happy to let him have half the proceeds.

I've looked into shared ownership but it's problematic, plus he's adamant that he wants to stay in his home. I can see that's looking increasingly unlikely though.

silvercar

diyaddictmse said:

theoretica said:

Did the ex-partner live in the house until 7 years ago?  That will matter for CGT. As probably would whether they are or were married.

So if they sold the property, paid off the mortgage, sorted tax, he should have over £100k to find somewhere to live, added to housing benefit a possibility for the rent portion of shared ownership?  That might be possible especially with retirement properties, depending on where in the country he needs to be.

Yes, she lived in the house until 7 years ago. They never married. I did wonder about the CGT element. Presumably he'd have to pay it on his share, and she'd have to pay it based on the increase in value over the last 7 years?

Although the house is in her name, he'd have a good case for claiming half its value, since he did loads of building work on it and paid half the mortgage while they were together. This could be one reason why she's happy to let him have half the proceeds.

I've looked into shared ownership but it's problematic, plus he's adamant that he wants to stay in his home. I can see that's looking increasingly unlikely though.

On the face of it, the house is hers, so all the CGT liability is hers. It is calculated on a linear scale with a percentage deducted for the time she lived in it plus a couple of other allowances.

He doesn’t own the house, so has no CGT liability. If he could claim beneficial ownership of a share, he has lived in it as his main residence for the whole time of his ownership, so has no CGT liability. Though claiming a share of the property, reduces her liability.

theartfullodger

It's not his only income.  He'll also get Winter fuel allowance and the £10 xmas bonus. Plus, not cash, free 'bus pass, free eye tests, free prescriptions. 

Is ex declaring rent income to HMRC?  And realises she will be liable for CGT as she's not living there? (may be none to pay if gain low enough).