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    • Dave903
    • By Dave903 12th May 18, 3:13 PM
    • 2Posts
    • 0Thanks
    Dave903
    Purchasing parents house
    • #1
    • 12th May 18, 3:13 PM
    Purchasing parents house 12th May 18 at 3:13 PM
    Hello everyone.

    I have a question, its quite long winded so apologies. I recently split from my partner and walked away with nothing, I have currently moved in with my parents. Due to reasons Id rather not go into, my parents have an interest only mortgage, which has seven years left. After that they have the chance to purchase the house for 130k, the house has a market value of 225-250k. They have asked me if I would like to buy it, and they would pay me rent, as I would be living there too. They seem to think that if I were to buy the house now, then I wouldnt have to find a deposit as there is equity in the property. They are also under the impression that as their mortgage is interest only, then their payments would stop automatically if I were to buy the house. Would I have to declare that they are paying me rent, also would I have to pay tax on it? It would probably be beneficial for me to declare it in some way, as I would like to get a loan for a nice car a few months later, and the extra income would help my chances of a loan. So my question is, are my parents correct, and would it be possible for me to do this?

    Many thanksgiving , and thanks for reading.
Page 1
    • Mojisola
    • By Mojisola 12th May 18, 3:19 PM
    • 29,789 Posts
    • 76,336 Thanks
    Mojisola
    • #2
    • 12th May 18, 3:19 PM
    • #2
    • 12th May 18, 3:19 PM
    They are also under the impression that as their mortgage is interest only, then their payments would stop automatically if I were to buy the house.
    Originally posted by Dave903
    Their payments would stop because they would repay the mortgage with the money you paid for the house.
    • 00ec25
    • By 00ec25 12th May 18, 5:11 PM
    • 6,970 Posts
    • 6,650 Thanks
    00ec25
    • #3
    • 12th May 18, 5:11 PM
    • #3
    • 12th May 18, 5:11 PM
    lots of implications....

    1. You cannot become sole owner unless parent's mortgage is paid off in full. How much is it seeing as it is interest only so has never reduced? (What they can buy the property for is irrelevant in terms of clearing the mortgage)

    2. if you become sole owner and they continue living there they must pay you rent otherwise they will be caught by the pre owned asset tax rules which result in them being exposed to paying income tax on the notional value of the rent the property would get on the open market. The same applies if they pay you a discounted rent, they either pay full market rate or they get taxed seeing as they have sold their asset to you at a discount.

    3. Continued occupation of the property by its previous owners will be a stumbling block for many lenders as the parents could be seen to still have some "rights" if a repossession was required following you defaulting on your own mortgage - ie. they may not want to lend to you at all

    4. You would be a landlord with all the implications that brings. However, as it appears you intend to reside there yourself your parents would be your lodgers rather than your tenants (unless you do something stupid like given the exclusive use of a part of the property and this create a tenancy).

    5. Of course you will have to pay tax on the rental profit you make - it is money you receive which has not been taxed ! However, with lodgers you can then claim the rent a room allowance which may more than cover the rent they pay you (7,500?)

    6. Whether a lender would include that rental income as part of your overall affordability calculation is a very moot point seeing as the source is your parents, ie: the ex owners and ongoing residents with zero chance you as their LL would evict them for non payment of rent and replace then with strangers who would pay rent. Many lenders will shy away and base your affordability excluding the rent.
    Last edited by 00ec25; 12-05-2018 at 5:18 PM.
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