Buying second house for student daughter
Discussion
My daughter has just begun her first year at Birmingham uni. This year she is in student accommodation on campus for which we have paid. I have enough savings to put down a 50% deposit on a 3 bed semi and intend to take out an interest only mortgage for the balance. My thought process is that my daughter can then rent out the other two rooms and live off the proceeds. Once she finishes uni in 3 or 4 years I will then sell the property hopefully for a profit.
The cost of this is 36 x monthly interest payment + stamp duty and legal fee's for both buying and selling the property + cost of furnishing the house + lost savings income - any gain on the property value.
The upside is she will have bugger all student debt when she finishes her course and wont have a dodgy landlord and I might well make a gain on the property
My questions are
1. Is it worth it?
2. Can she receive the rental income despite not owning the property. I know this is taxable but can she use her own personal allowance?
3. Can I offset any of the expenditure against my own tax liabilities.
4. What have I missed?
TIA
The cost of this is 36 x monthly interest payment + stamp duty and legal fee's for both buying and selling the property + cost of furnishing the house + lost savings income - any gain on the property value.
The upside is she will have bugger all student debt when she finishes her course and wont have a dodgy landlord and I might well make a gain on the property
My questions are
1. Is it worth it?
2. Can she receive the rental income despite not owning the property. I know this is taxable but can she use her own personal allowance?
3. Can I offset any of the expenditure against my own tax liabilities.
4. What have I missed?
TIA
Firstly you should be aware most (if not all) BTL mortgages have a condition that you don't 'rent' to a relative. The reason is obvious because it is assumed the relative lives rent free and this dilutes the general requirement that the rental income is >125% of the mortgage repayments. Your 50% deposit may negate the 125% rule but the 'no relatives' rule could still apply.
Second, you're going to pay mortgage payments for 3 years without any return as you're gifting the income to your daughter. This could be tax efficient as your daughter will have unearned income to set against her £11k tax free income but it's still costing you - bit like paying her rent TBH with the added responsibilities of maintaining a property.
Thirdly, you're relying on capital gains to make it worthwhile. Dear old George has just put a big stick in the works with the change to tax relief on BTL mortgage interest (which you couldn't claim anyway if your daughter is receiving the income) but I do see this as having an impact on future gains of typical BTL properties.
And a final point is check out the HMO rules. Many university towns now have removed the 'permissive development' of change of use to HMO and require planning consent if not full-blown licensing.
Second, you're going to pay mortgage payments for 3 years without any return as you're gifting the income to your daughter. This could be tax efficient as your daughter will have unearned income to set against her £11k tax free income but it's still costing you - bit like paying her rent TBH with the added responsibilities of maintaining a property.
Thirdly, you're relying on capital gains to make it worthwhile. Dear old George has just put a big stick in the works with the change to tax relief on BTL mortgage interest (which you couldn't claim anyway if your daughter is receiving the income) but I do see this as having an impact on future gains of typical BTL properties.
And a final point is check out the HMO rules. Many university towns now have removed the 'permissive development' of change of use to HMO and require planning consent if not full-blown licensing.
I will be doing exactly the same if the little tyke goes to uni. As said previously you will have to have contracts with his two mates 2x income should easily cover the repayments and give a small allowance to your daughter. How you go about using her tax allowance though is going to need some thought. Put her on the deeds as a joint owner? She declares half? You also get to use her CGT allowance if it makes any money when it's time to sell.
Sarnie said:
SpeckledJim said:
A lot of the complexity goes away if it's your daughter's house, rather than yours. As long as you trust her enough, that's the way to do it, I think?
Doesn't solve the complexity of a student obtaining a 50% mortgage though......That's how we did it, perhaps the rules have changed?
Most of the second and third year students at Birmingham live in the Victorian houses in Selley Oak .
I suggested buying to my Daughter when she was there .
The general Housing stock in Selley Oak is " crap " meaning high maintenance . The kids don't want to live anywhere else because all their friends are in Selley oak .
We decided to pass .
I suggested buying to my Daughter when she was there .
The general Housing stock in Selley Oak is " crap " meaning high maintenance . The kids don't want to live anywhere else because all their friends are in Selley oak .
We decided to pass .
A friend did this, daughter lived in it for 12 months and now he owns a property in Liverpool he never sees and its a 4 hour round trip to sort out problems.
Seems a bit daft to me, even if financially it makes sense, there is a lot of hassle, and students are hardly known for keeping properties in good condition. At least buy one close to home so its not an effort to repaint.
Seems a bit daft to me, even if financially it makes sense, there is a lot of hassle, and students are hardly known for keeping properties in good condition. At least buy one close to home so its not an effort to repaint.
Is the purpose to make money or to save your daughter from debt?
Student finance is probably the cheapest loan you will ever receive and you do not have to pay it back until you are earning 21,000 (appx), personally I do not see the point, if the objective is to stop your daughter from getting into debt the money would be better spent providing her with a house deposit post University.
Just my 2p!
Student finance is probably the cheapest loan you will ever receive and you do not have to pay it back until you are earning 21,000 (appx), personally I do not see the point, if the objective is to stop your daughter from getting into debt the money would be better spent providing her with a house deposit post University.
Just my 2p!
DaveOrange said:
My daughter has just begun her first year at Birmingham uni. This year she is in student accommodation on campus for which we have paid. I have enough savings to put down a 50% deposit on a 3 bed semi and intend to take out an interest only mortgage for the balance. My thought process is that my daughter can then rent out the other two rooms and live off the proceeds.
If you buy a typical 3 bed semi who's going to want the usually tiny 3rd bedroom? And the normal drill with student houses is to use one of the downstairs rooms as a bedroom, so you should get 4 in there.We looked at this when our daughter went to Birmingham 10+yrs ago and it don't make sense - the price of suitable unconverted property seemed to have the rental potential fully built into them. The landlord she rented off for years 2 & 3 had bought a bunch of properties in the depths of the mid 90's so was laughing.
Also Birmingham, in common with other Uni's, was starting to build more accommodation of its own. Student numbers were increasing though, but I don't know what the current demand / supply balance is like.
Gassing Station | Finance | Top of Page | What's New | My Stuff