Buying property for father - multiple issues to consider

Keep_pedalling

You could lend him the money to buy a place. You loan could be protected by a charge on the property and he can pay you interest rather than rent.

webmasterpolo

Helping your dad is great but you are right to be considering the implications before jumping in.

a) yes 100%

b) painful yes but also a cost to offset against capital gains tax in future.

c) As he is not formally divorced you need to ensure you keep yourself protected. Don't put him on the deeds or joint mortgage or anything like that unless you have legally protected yourself.

d) We don't know your circumstances but you seem to be fairly well off which is great, you do mention your desire to use the funds for your children, so it's very likely if you locked them into a house they wouldn't be available for this as at 75 he's likely to live for 10+. I would focus on solving this issue before proceeding with a purchase. Can you save more money before your children need it? Could you borrow money against your home or even this BTL? Would putting a mortgage on the BTL be attractive considering the interest rate and tax deductions allowed for a LL in your position? Could you reduce tax by holding the house in joint names with your spouse?

e) If you charge him full market rent and do it it all formally and properly I can't see how the council can claim the house is his, he would just be a normal renter.

The other recommendations above sound good and def worthy of exploring.

HTH

mither_2

Thanks to everyone has responded here! Some really good ideas and all constructive. It is stressful as i want to help but my concern is getting this wrong and then having more stress and costs further down the line. I'll take these ideas away and come back with any questions.

Thanks again.

Exodi

I won't touch on the stamp duty situation as others have already been very helpful on this. I am quite curious about the situation with the separation though.

You mention he separated from his previous partner, who you mentioned is his second wife, so they are married. You mention she 'took quite a lot from him' when they split.

Later in your question c) you mention about the ex potentially "try[ing] to claim a share of the house".

So are they divorced with a financial order? The fact a significant amount of assets were handed over suggests they may be, but then the later concern in question c) suggests they're not.

I certainly wouldn't want to be commingling any assets with someone who has not made a financial order with their ex partner.

https://forums.moneysavingexpert.com/discussion/comment/82016952#Comment_82016952

Agreed, I think putting the house in the fathers name (essentially gifting him £230k to bequeath as he whims) is a bad idea. Not only the risk of the ex (as I touched upon above), the risk of being used for care as you point out and as you also mention, the potential risk of a change in their relationship.

For all we know the father could meet a new love-of-his-life at a time where his relationship with the OP becomes strained and decide to instead leave the house to his new love. Certainly would not be the first time that has happened…

mither_2

If I could absorb all these costs then I could have him draw down £xk from his pension and pay me this up front as rent and this may also stop his ex wife claiming against him as he would have much less money and I would own the house.

I'm certainly not a divorce expert, but I can't imagine any judge on the face of the Earth would go along with one of the parties drawing down significant assets and giving them to their son, which will be used to buy property in the sons name, and then claiming reduced assets for the divorce. I think if that was the case, every divorcee would be 'gifting' their friends+family everything they own before the split.

saajan_12

https://forums.moneysavingexpert.com/discussion/6670304/buying-property-for-father-multiple-issues-to-consider

Father (75) is being evicted from his bungalow as landlord is selling (this move was trigerred by changes to section 21 and she got her notice in just in time to be ahead of the deadline).

Firstly is the S21 valid? Often they arent. That'll just give some breathing room though, if the LL is selling then that's a valid reason to evict even under the new rules.

He has c£100k in a private drawdown pension and his state pension. No other income.

There is little or nothing on the market and even less at that letting agents will consider him for (he doesn't meet their income criteria).

..

He's stuck in limbo as he can't buy, can't rent privately (even with me as a guarantor) and can't get a countil place.

Why can't he rent privately? Even students without an income can usually get a UK homeowner or working parent as a guarantor. That would be cleanest, he can pay out of his pension as he has been to date.

He separated from his previous partner (his second wife, not my mother) c6 years ago and has had no contact from her. She came into the relationship with no money and took quite a lot from him which is partly why he is in such a predicament now.

..

c) concerns over whether his ex wife on his death could emerge and try to claim a share of the house. Seems unlikley as the house will be in my name.

Well are they divorced or separated? If not divorced then what's the hold up? That's the way to put a line under the linkage, otherwise she could get a portion of his pension pot, which is equally concerning as any property she could 'take'.

I saw a bungalow for sale at £230k. Its basic but it would be fine for him. I have the cash to buy it as I have savings and no mortgage on my family home.

No problem in having a tenancy agreement for rent, but it is quite expensive for you from the higher rate SDLT and the income tax on rent. Instead, what you would do is have him buy the property in his own name with a private mortgage from you, payable upon his death or going into care. That means

• no higher rate SDLT as its his only property
• no landlord - tenant obligations, eg if you fall out and then he decides to make an issue of EPC or something random.
• you can charge him whatever % in interest, or just 0%.
• the loan is secured as a proper charge on the property deeds, meaning any ex wives or councils only have access to the equity (ie only the growth), you still get your loan amount back so that's protected.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/82018759#Comment_82018759

I am not an expert on divorce matters but, as well as the obvious comments made around drawing down money to pay as upfront rent to avoid the ex-wife having a claim, I can quite imagine that (whether or not there has been a final financial order from the marriage), any situation where a child is buying the parent a house shortly after the parent's marital breakdown is open to challenge from the ex around whether the money being used was really the father's anyway and had been "hidden" by arranging for the child to "look after" the money.

I really think the OP needs to ensure that the Father has fully concluded any financial matters associated with the defunct marriage and also allow a decent period of time to pass before getting involved in any large way such as property purchase.

Maybe the best the OP can do is to support the Father with the upheaval of moving to another rental property and, if really needed, act as Guarantor. I rarely recommend anyone to take on the role of Guarantor but, in the case where the potential Guarantor was going to potentially payout a substantial sum in any case to support the individual requiring the Guarantor, it might not be so bad.

Exodi

saajan_12

Why can't he rent privately? Even students without an income can usually get a UK homeowner or working parent as a guarantor. That would be cleanest, he can pay out of his pension as he has been to date.

Agreed, I acted as guarantor for my parents about 5 years ago.

I had to provide as much details as the actual tenants, including proof of property ownership and payslips.

It wasn't a problem though, both estate agents we spoke to were happy to accept the arrangement.

Their only income at the time was ~£1.3k p/m from a DB pension (they were not claiming state pension and as they were moving back from France to the UK, they were not working). The rent was £450 p/m near Blackburn, so about 35% of their income. Unfortunately since then in the last 5 years we've seen significant inflation, particularly on private rents.

I suspect the OP's problem isn't about the guarantor arrangement, it's about affordability.

OP's father has state pension (~£1,046 p/m) and £100k private pension, which they could reasonably draw another £350 p/m from, giving them ~£1.4k p/m.

Depending on where they live, that figure could be swallowed entirely by rent. I'd imagine estate agents have an affordability obligation to ensure rent isn't more than X% of the prospective tenants income, which it almost certainly would for OP's father in most parts of the country nowadays.

I also don't know how estate agents consider DC pension pots in terms of income (of they consider it at all?). If they don't it just makes the affordability issue even worse.

mither_2

https://forums.moneysavingexpert.com/discussion/comment/82019265#Comment_82019265

This is all good advice. My father and his wife separated 5 years ago and have had no contact. I don't think she has the inclination or wherewithal to try and go after him because a) its too daunting and too much trouble and b) she probably knows that she doesn't have a strong case as they were only together for around 8-9 years and had no children etc and and she came into the marriage with no money (only debts) and sponged off him for years (for want of a better term). He should have been wiser and I would like to have advised him that it would end badly but i didn't think he'd listen. She could try and get money from him but the process could take long time and would presumably involve her outlating some cash up front. She and her adult daughter have since been re-housed by the council and have a nice enough place apparently so less motivated to come after him even if she though she could win.

I have offered to act as a guaantor and he got shortlisted on one property so I filled out all the forms and then they gave it to someone else. I can keep filling out thse forms as I'm told my salary more than meets their requirements but he is up against working couples and so it hasn't helped so far i.e. the landlord has taken these rather than a single 74 year old. Their algorithm goes against him even though he has two guaranteed incomes sources (state pension & private pension).

All of the advice I can see is that he shouldn't go anywhere and wait to be evicted and the council will then have to find him somewhere. If he leaves then he's made himself homeless. There is such demand for council prioperties that he's not considered to be in real need. They may house him in a bungalow that he likkes but its a leap of faith as they could just as easily put him into temporary accomodation of unknown quality for an unknown period of time until he maybe gets a bungalow that he likes.

He's been renting a bungalow privately for 5 years and so has shown that he can afford it but there is such a shortage of rental properties where so many landlords in the area are selling up. He woudl idealy have stayed another 5 years but his landlord got spooked by the new renters rights and sold up. Unclear what the new owner is going to do.

One positive is that there do seem to be a lot of bungalows for sale in the area. Almost none to rent though.

mither_2

Hi Exodi. You are correct. As per my response above my being the guarantor isn't reaslly helping so far as there are so many people competing for the same properties. As he's never got very far in the process we never really got chance to discuss the affordability point. maybe they did consider himsuitable or maybe not. The issue has been that we've never got that far as there has always been another option for the landlord.

mither_2

https://forums.moneysavingexpert.com/discussion/comment/82018971#Comment_82018971

Thanks Saajan. Some really good points that I've replied to below.

No problem in having a tenancy agreement for rent, but it is quite expensive for you from the higher rate SDLT and the income tax on rent. Instead, what you would do is have him buy the property in his own name with a private mortgage from you, payable upon his death or going into care. That means

• no higher rate SDLT as its his only property
• no landlord - tenant obligations, eg if you fall out and then he decides to make an issue of EPC or something random.
• you can charge him whatever % in interest, or just 0%.
• the loan is secured as a proper charge on the property deeds, meaning any ex wives or councils only have access to the equity (ie only the growth), you still get your loan amount back so that's protected.
  

I like all of these suggestions and think these could work but in order to do so he needs to get divorced from his ex-wife. When I ask him why not he says its was very stressful and expensive when he got divorced from my mum and doesn't want to go through it again. Effectively its too much hassle.

My mum is organised, computer literates and had a professional job. All the divorce paperwork was quite straightforward for her. His ex wife (who he married after my mum) wouldn't have a clue what to do and so it would be like the blind leading the blind and could therefore take years so I don't know if this is an option.